<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 7, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TRENWICK GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6719 06-1152790
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>
------------------------
ONE CANTERBURY GREEN
STAMFORD, CONNECTICUT 06901
(203) 353-5500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JANE T. WIZNITZER
VICE PRESIDENT-LEGAL AFFAIRS AND SECRETARY
TRENWICK GROUP INC.
ONE CANTERBURY GREEN
STAMFORD, CONNECTICUT 06901
(203) 353-5500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENTS FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JAMES R. CAMERON, ESQ. ROBERT S. RACHOFSKY, ESQ.
BAKER & MCKENZIE LEBOEUF, LAMB, GREENE & MACRAE, L.L.P.
805 THIRD AVENUE 125 WEST 55TH STREET
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10019
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective and all
other conditions to the merger of Chartwell Re Corporation with and into the
Registrant pursuant to the Agreement and Plan of Merger described in the
enclosed joint proxy statement/prospectus have been satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, check the
following box and list the Securities Act registration statement number of the
earlier effective registration for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED(1) REGISTERED(2) PER SHARE PRICE(3) REGISTRATION FEE(4)
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<S> <C> <C> <C> <C>
Common Stock, par value $.10 per
share
(including associated
Rights)(5)..................... 7,971,887 N/A $161,853,458 $8,760
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</TABLE>
(1) This Registration Statement relates to the shares of common stock, par value
$.10 per share, of the Registrant estimated to be issuable in connection
with the merger.
(2) The number of shares of Trenwick common stock to be registered pursuant to
this Registration Statement is based on the maximum number of shares of
Trenwick common stock estimated to be issuable to holders of Chartwell
common stock (and holders of outstanding options to purchase Chartwell
common stock under Chartwell's Sharesave Scheme 1997) upon the consummation
of the merger under the terms of the merger agreement which represents that
number of shares of Chartwell common stock expected to be outstanding (or
subject to such options) immediately prior to the effective time of the
merger, multiplied by the exchange ratio of 0.825 of a share of Trenwick
common stock for each share (or option to purchase a share) of Chartwell
common stock.
(3) Pursuant to Rules 457(f)(1) and 457(c) under the Securities Act and
estimated solely for the purpose of calculating the registration fee, the
proposed maximum aggregate offering price is equal to the product of (a)
$16.75, the average of the high and low sales prices per share of Chartwell
common stock on The New York Stock Exchange, Inc. Composite Transaction Tape
on September 1, 1999, multiplied by (b) 9,662,893, the total number of
shares (and options to purchase shares) of Chartwell common stock to be
cancelled in the merger.
(4) This fee has been calculated pursuant to Rule 457(f) under the Securities
Act as, .0278 of one percent of $161,853,458, the proposed maximum aggregate
offering price. Pursuant to Rule 457(b) under the Securities Act, the amount
of the registration fee has been reduced by $36,236, the amount paid to the
Securities and Exchange Commission on July 29, 1999 with respect to this
transaction. The difference of $8,760 is being paid herewith.
(5) Includes associated Rights to purchase one two-hundredths of a share of
Trenwick Series B Junior Participating Preferred Stock. Until the occurrence
of certain prescribed events, the Rights are not exercisable. The Rights are
evidenced by the certificates representing Trenwick common stock and will be
transferred only with such shares.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
[TRENWICK LOGO]
TRENWICK GROUP INC.
[CHARTWELL LOGO]
CHARTWELL RE CORPORATION
JOINT PROXY STATEMENT/PROSPECTUS
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
Dear Fellow Stockholders:
The boards of directors of Trenwick Group Inc. and Chartwell Re Corporation
have each called a special stockholders meeting for October 7, 1999 at which you
will be asked to consider and to vote upon a proposal to adopt a merger
agreement and approve a merger in which Trenwick will acquire Chartwell. This
proposed merger will join Trenwick, an insurance holding company whose principal
operating subsidiaries provide reinsurance and specialty insurance coverage to
insurance companies in the United States and globally, with Chartwell, an
insurance holding company with underwriting and service operations which
conducts its business in the United States and in the Lloyd's market. We believe
this combination will enhance the value of both Trenwick and Chartwell and will
provide Trenwick and Chartwell stockholders with an opportunity to participate
in the growth of a larger, more diversified company with greater resources to
compete in the evolving reinsurance and insurance marketplace. This document
explains why, and we encourage you to read it all carefully.
In the merger, Chartwell will merge with and into Trenwick, with Trenwick
being the surviving corporation. Chartwell stockholders will receive 0.825 of a
share of Trenwick common stock in exchange for each share of Chartwell common
stock they own. The merger is intended to be tax-free to both Trenwick
stockholders and Chartwell stockholders, except for taxes due on cash received
by Chartwell stockholders for fractional shares.
We estimate that approximately 7,971,887 shares of Trenwick common stock
will be issued to Chartwell stockholders upon completion of the merger. These
shares will represent approximately 42.9% of the outstanding shares of common
stock of Trenwick after the merger. Likewise, the shares of Trenwick common
stock held by Trenwick stockholders before the merger will represent
approximately 57.1% of the outstanding shares of Trenwick common stock after the
merger. Trenwick stockholders will continue to own their existing shares after
the merger.
At the Trenwick meeting, Trenwick stockholders also will be asked to approve
an amendment to a Trenwick stock plan to take effect upon completion of the
merger.
YOUR VOTE IS VERY IMPORTANT. We cannot complete the merger unless we obtain
the necessary government approvals and unless the stockholders of both our
companies adopt the merger agreement and approve the merger at the stockholders
meetings. Whether or not you plan to attend your stockholders meeting, please
take the time to vote by completing and mailing the enclosed proxy card to us.
If you date and mail your proxy card without indicating how you want to vote,
your proxy will be counted as a vote "FOR" the merger and, in the case of the
Trenwick meeting, "FOR" the stock plan amendment. If you do not return your
card, or if you do not instruct your broker how to vote any shares held for you
in "street name," the effect will be the same as a vote against the merger;
however, in the case of the Trenwick meeting, an abstention from voting or a
broker non-vote will not have the effect of a vote against the stock plan
amendment.
The dates, times and places of the special meetings are as follows:
FOR TRENWICK STOCKHOLDERS:
October 7, 1999
9:00 a.m., local time
Hyatt Regency Greenwich
1800 East Putnam Avenue
Old Greenwich, Connecticut 06870
FOR CHARTWELL STOCKHOLDERS:
October 7, 1999
9:00 a.m., local time
Four Stamford Plaza
107 Elm Street, 15th Floor
Stamford, Connecticut 06902
This document gives you detailed information about the stockholders
meetings, the merger agreement, the merger and other related transactions, as
well as the stock plan amendment, and it includes the merger agreement and other
important documents as Appendices. You can also obtain information about our
companies from publicly available documents that we have each filed with the
Securities and Exchange Commission. We encourage you to read this entire
document carefully. PLEASE SEE PAGE 17 FOR RISK FACTORS RELATING TO THE MERGER
WHICH YOU SHOULD CONSIDER.
We support this combination of our companies and join with the other members
of our boards of directors in recommending that you vote in favor of the
adoption of the merger agreement and the approval of the merger and, if you are
a Trenwick stockholder, in favor of the stock plan amendment.
<TABLE>
<S> <C>
/s/ James F. Billett, Jr. /s/ Richard E. Cole
James F. Billett, Jr.
Chairman, President and Richard E. Cole
Chief Executive Officer Chairman and
Trenwick Group Inc. Chief Executive Officer
Chartwell Re Corporation
</TABLE>
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THE SECURITIES TO BE ISSUED UNDER THIS DOCUMENT OR DETERMINED IF THIS
DOCUMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This joint proxy statement/prospectus is dated September 7, 1999 and is
first being mailed to stockholders on or about September 8, 1999.
<PAGE> 3
[TRENWICK LOGO]
TRENWICK GROUP INC.
ONE CANTERBURY GREEN, STAMFORD, CONNECTICUT 06901
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 7, 1999
------------------------
To the holders of common stock:
A special meeting of common stockholders of Trenwick Group Inc., a Delaware
corporation, will be held on October 7, 1999, at 9:00 a.m., local time, at the
Hyatt Regency Greenwich, 1800 East Putnam Avenue, Old Greenwich, Connecticut
06870. The purpose of the meeting is to consider and to vote upon the following
matters:
1. A proposal to adopt the Agreement and Plan of Merger, between
Trenwick and Chartwell Re Corporation, dated as of June 21, 1999, and
approve the merger of Chartwell with and into Trenwick upon the terms and
subject to the conditions set forth in the merger agreement, and the
related issuance of Trenwick common stock to Chartwell stockholders in
completion of the merger, as more fully described in the attached joint
proxy statement/prospectus. Each share of Chartwell common stock
outstanding immediately prior to the merger will be converted into 0.825 of
a share of Trenwick common stock upon completion of the merger.
2. A proposal to amend Trenwick's 1993 Stock Option Plan, effective
upon completion of the merger, by increasing the number of shares of common
stock available for issuance under the plan by 125,000 shares.
3. Any other matters properly brought before the stockholders at the
meeting.
A form of proxy and a joint proxy statement/prospectus containing more
detailed information on the matters to be considered at the Trenwick
stockholders meeting, including a copy of the merger agreement attached as
Appendix A to that document, accompany and form a part of this notice.
The board of directors has fixed the close of business on September 1,
1999, as the record date for determining the stockholders entitled to vote at
the meeting. Accordingly, only stockholders of record at that time are entitled
to notice of, and to vote at, the meeting.
The affirmative vote of the holders of a majority of the outstanding shares
of Trenwick common stock is necessary to adopt the merger agreement and approve
the merger and the issuance of Trenwick common stock to Chartwell stockholders
in completion of the merger. An abstention from voting or a broker non-vote will
have the same effect as a vote against adoption of the merger agreement and
approval of the merger and the issuance of Trenwick common stock to Chartwell
stockholders. However, only the affirmative vote of a majority of the votes duly
cast is required to approve the stock plan amendment, and an abstention from
voting or a broker non-vote will not have the effect of a vote against the stock
plan amendment. Trenwick stockholders are not entitled to appraisal rights with
respect to the proposals to be voted on at the meeting.
THE MEMBERS OF THE TRENWICK BOARD OF DIRECTORS PRESENT AT THE SPECIAL
MEETING OF THE BOARD OF DIRECTORS HELD ON JUNE 21, 1999, HAVE FOUND ADVISABLE,
AUTHORIZED AND APPROVED THE MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY
RECOMMEND THAT THE TRENWICK STOCKHOLDERS VOTE "FOR" THE ADOPTION OF THE MERGER
AGREEMENT AND APPROVAL OF THE MERGER AND THE RELATED ISSUANCE OF TRENWICK COMMON
STOCK TO CHARTWELL STOCKHOLDERS IN COMPLETION OF THE MERGER. THE TRENWICK BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE TRENWICK STOCKHOLDERS VOTE "FOR"
THE STOCK PLAN AMENDMENT.
<PAGE> 4
MANAGEMENT DESIRES THE ATTENDANCE OF EVERY STOCKHOLDER AT THE MEETING. IT
IS RECOGNIZED, HOWEVER, THAT SOME STOCKHOLDERS WILL BE UNABLE TO ATTEND. TO
ACHIEVE A QUORUM REQUIRED TO CONDUCT BUSINESS AT THE MEETING, WE ASK THAT YOU
VOTE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE SELF-ADDRESSED, STAMPED
ENVELOPE. YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON IF YOU ARE LATER ABLE TO
ATTEND.
By Order of the Board of Directors
/s/ Jane T. Wiznitzer
Jane T. Wiznitzer
Secretary
Stamford, Connecticut
September 7, 1999
TRENWICK STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES.
<PAGE> 5
[CHARTWELL LOGO]
CHARTWELL RE CORPORATION
FOUR STAMFORD PLAZA, 107 ELM STREET, STAMFORD, CONNECTICUT 06902
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 7, 1999
------------------------
To the holders of common stock:
A special meeting of common stockholders of Chartwell Re Corporation, a
Delaware corporation, will be held on October 7, 1999, at 9:00 a.m., local time,
at Four Stamford Plaza, 107 Elm Street, 15th Floor, Stamford, Connecticut 06902.
The purpose of the meeting is to consider and to vote upon the following
matters:
1. A proposal to adopt the Agreement and Plan of Merger between
Trenwick Group Inc. and Chartwell, dated as of June 21, 1999, and approve
the merger of Chartwell with and into Trenwick upon the terms and subject
to the conditions set forth in the merger agreement, as more fully
described in the attached joint proxy statement/prospectus. Each share of
Chartwell common stock outstanding immediately prior to the merger will be
converted into 0.825 of a share of Trenwick common stock upon completion of
the merger.
2. Any other matters properly brought before the stockholders at the
meeting.
A form of proxy and a joint proxy statement/prospectus containing more
detailed information on the matters to be considered at the Chartwell
stockholders meeting, including a copy of the merger agreement attached as
Appendix A to that document, accompany and form a part of this notice.
The board of directors has fixed the close of business on September 1,
1999, as the record date for determining the stockholders entitled to vote at
the meeting. Accordingly, only stockholders of record at that time are entitled
to vote at the meeting.
The affirmative vote of the holders of a majority of the outstanding shares
of Chartwell common stock is necessary to adopt the merger agreement and approve
the merger. An abstention from voting or a broker non-vote will have the same
effect as a vote against adoption of the merger agreement and approval of the
merger. Chartwell stockholders are not entitled to appraisal rights with respect
to any of the proposals to be voted on at the Chartwell special meeting.
THE CHARTWELL BOARD OF DIRECTORS HAS FOUND ADVISABLE, AUTHORIZED AND
APPROVED THE MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT THE
CHARTWELL STOCKHOLDERS VOTE "FOR" THE ADOPTION OF THE MERGER AGREEMENT AND
APPROVAL OF THE MERGER.
<PAGE> 6
MANAGEMENT DESIRES THE ATTENDANCE OF EVERY STOCKHOLDER AT THE MEETING. IT
IS RECOGNIZED, HOWEVER, THAT SOME STOCKHOLDERS WILL BE UNABLE TO ATTEND. TO
ACHIEVE A QUORUM REQUIRED TO CONDUCT BUSINESS AT THE MEETING, WE ASK THAT YOU
VOTE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE SELF-ADDRESSED, STAMPED
ENVELOPE. YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON IF YOU ARE LATER ABLE TO
ATTEND.
By Order of the Board of Directors
/s/ John V. Del Col
John V. Del Col
Secretary
Stamford, Connecticut
September 7, 1999
CHARTWELL STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL
INSTRUCTED TO DO SO AFTER THE MERGER IS COMPLETED.
<PAGE> 7
REFERENCES TO ADDITIONAL INFORMATION
This document incorporates by reference important business and financial
information about Trenwick and Chartwell from other documents that are not
included in or delivered with this document. This information is available to
you without charge upon your written or oral request.
"Incorporation by reference" means that we are providing information that
is contained in a separate document by referring you to that separate document.
The information in that separate document is deemed to be part of this document,
except for any information that is superseded by information in this document.
The documents that are incorporated by reference may be amended, supplemented or
modified from time to time, and whenever they are amended, supplemented or
modified, this document will also be amended, supplemented or modified in the
same way.
You can obtain documents incorporated by reference in this document, other
than certain exhibits to those documents, by requesting them in writing or by
telephone from the appropriate company at the following addresses:
<TABLE>
<CAPTION>
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<S> <C>
TRENWICK GROUP INC. CHARTWELL RE CORPORATION
One Canterbury Green Four Stamford Plaza
Stamford, Connecticut 06901 107 Elm Street
(203) 353-5500 Stamford, Connecticut 06902
Attention: Jane T. Wiznitzer (203) 705-2500
Vice President-Legal Affairs Attention: John V. Del Col
and Secretary Vice President,
General Counsel and Secretary
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</TABLE>
If you would like to request documents, please do so by September 22, 1999
to receive them before the special meetings.
See "Where You Can Find More Information" on pages 102 and 103.
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<PAGE> 8
TABLE OF CONTENTS
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PAGE
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References to Additional Information........................ i
Summary..................................................... 1
Questions and Answers................................ 1
The Companies........................................ 5
The Special Meetings................................. 5
Record Date; Voting Power; Quorum; Required Vote..... 5
The Merger........................................... 6
Related Agreements and Transactions.................. 11
The Trenwick Stock Plan Amendment.................... 11
Other Information.................................... 12
Risk Factors......................................... 12
Forward-Looking Statements May Prove Inaccurate...... 12
Unaudited Comparative Per Share Data................. 13
Selected Consolidated Historical Financial Data...... 14
Selected Unaudited Pro Forma Combined Consolidated
Financial Information............................... 16
Risk Factors................................................ 17
Cautionary Statement Regarding Forward-Looking Statements... 17
Market Price and Dividend Information....................... 19
Dividend Information................................. 19
Recent Closing Prices................................ 19
Number of Stockholders............................... 19
The Merger.................................................. 20
General.............................................. 20
Background of the Merger............................. 21
Trenwick Reasons for the Merger; Recommendation of
the Trenwick Board of Directors..................... 23
Chartwell Reasons for the Merger; Recommendation of
the Chartwell Board of Directors.................... 25
Form of the Merger................................... 28
Merger Consideration................................. 28
Conversion of Shares; Procedures for Exchange of
Certificates; Fractional Shares..................... 28
Effective Time of the Merger......................... 29
Stock Exchange Listings.............................. 29
Opinion of Trenwick's Financial Advisor.............. 30
Opinion of Chartwell's Financial Advisor............. 35
Important Federal Income Tax Consequences of the
Merger.............................................. 42
Accounting Treatment................................. 43
Required Regulatory Filings and Approvals............ 43
Absence of Appraisal Rights.......................... 44
Interests of Certain Persons in the Merger........... 45
Existing Business Relationships Between Trenwick and
Chartwell........................................... 45
Restrictions on Resales by Affiliates................ 45
Management and Operations Following the Merger....... 45
Employment and Severance Arrangements................ 46
Other Arrangements with Employees.................... 48
Indemnification and Insurance........................ 49
Public Trading Markets; Delisting and Deregistration
of Chartwell Common Stock........................... 49
</TABLE>
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<PAGE> 9
<TABLE>
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PAGE
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The Merger Agreement........................................ 50
General.............................................. 50
Closing of the Merger................................ 50
Effective Time of the Merger......................... 50
Trenwick Following the Merger........................ 50
Terms of the Merger; Consideration to be Received in
the Merger.......................................... 50
Exchange of Certificates............................. 51
Fractional Shares.................................... 52
Conditions of the Merger............................. 53
Representations and Warranties....................... 54
Covenants............................................ 56
Termination.......................................... 59
Expenses and Termination Fees........................ 60
Amendment and Waiver................................. 61
Access to Information................................ 61
Related Agreements and Transactions......................... 61
Reinsurance Agreement................................ 61
Stock Option Agreement............................... 62
Amendment to the Trenwick 1993 Stock Option Plan............ 64
Proposed Amendment................................... 64
The Plan............................................. 64
The Trenwick Special Meeting................................ 69
General; Dates, Times and Places..................... 69
Purpose of the Trenwick Special Meeting.............. 69
Revocation of Proxies................................ 69
Record Date; Voting Power............................ 69
Quorum; Vote Required................................ 69
Expenses of Solicitation............................. 70
Miscellaneous........................................ 70
Other Information for the Trenwick Special Meeting.......... 71
Security Ownership of Certain Beneficial Owners and
Management.......................................... 71
Executive Compensation............................... 74
Report of the Compensation Committee on the
Compensation of Trenwick's Executive Officers....... 77
Stockholder Return Performance Presentation.......... 79
Section 16(a) Beneficial Ownership Reporting
Compliance.......................................... 79
The Chartwell Special Meeting............................... 79
General; Dates, Times and Places..................... 79
Purpose of the Chartwell Special Meeting............. 79
Revocation of Proxies................................ 80
Record Date; Voting Power............................ 80
Quorum; Vote Required................................ 80
Expenses of Solicitation............................. 80
Miscellaneous........................................ 81
Other Information for the Chartwell Special
Meeting -- Security Ownership of Certain Beneficial Owners
and Management............................................ 82
Information Regarding Trenwick.............................. 84
Information Regarding Chartwell............................. 85
Recent Developments......................................... 85
</TABLE>
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<PAGE> 10
<TABLE>
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PAGE
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Unaudited Pro Forma Combined Consolidated Financial
Information............................................... 87
Description of Trenwick Capital Stock....................... 93
General................................................... 93
Trenwick Common Stock..................................... 93
Trenwick Preferred Stock.................................. 93
Comparison of Rights of Trenwick Stockholders and Chartwell
Stockholders.............................................. 93
Authorized Stock.......................................... 94
Board of Directors........................................ 94
Stockholders.............................................. 95
Amendment of By-Laws...................................... 97
Transactions with Interested Stockholders................. 97
Appraisal Rights.......................................... 98
Stockholder Rights Plans.................................. 99
Legal Matters............................................... 101
Experts..................................................... 101
Future Stockholder Proposals................................ 101
Where You Can Find More Information......................... 102
</TABLE>
<TABLE>
<S> <C> <C>
APPENDIX A -- Agreement and Plan of Merger between Trenwick Group Inc. and
Chartwell Re Corporation, dated as of June 21, 1999
APPENDIX B -- Stock Option Agreement dated as of June 21, 1999 by and
between Trenwick Group Inc. and Chartwell Re Corporation
APPENDIX C -- Fairness Opinion of Donaldson, Lufkin & Jenrette Securities
Corp., dated June 21, 1999
APPENDIX D -- Opinion of Goldman, Sachs & Co., dated June 21, 1999
APPENDIX E -- Trenwick 1993 Stock Option Plan
</TABLE>
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<PAGE> 11
SUMMARY
The transactions described in this document are complex. This summary
highlights selected information from this document and may not contain all of
the information that is important to you. To better understand the merger and
related transactions and for a more complete description of the legal terms of
the merger and related transactions, you should read carefully this entire
document, as well as the additional documents we refer you to. See "Where You
Can Find More Information" on pages 102 and 103.
QUESTIONS AND ANSWERS
Q.: WHAT ARE THE PROPOSED TRANSACTIONS THAT I AM BEING ASKED TO VOTE FOR?
A.: Trenwick will acquire Chartwell in a merger. In the merger, Chartwell will
merge with and into Trenwick, and Trenwick will be the surviving
corporation. Chartwell stockholders are each being asked to adopt the
merger agreement and approve the merger of Chartwell with and into
Trenwick. Trenwick stockholders are being asked to adopt the merger
agreement and approve the merger and the related issuance of Trenwick
common stock to Chartwell stockholders in completion of the merger and to
approve the addition of shares to a Trenwick stock plan to take effect upon
completion of the merger.
Q.: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?
A.: Trenwick and Chartwell believe that the merger will create value for both
companies' stockholders by enabling us to take advantage of the
complementary strategic fit of our respective businesses. Combining
Trenwick with Chartwell also will provide our stockholders with an
opportunity to participate in the growth of a larger, more diversified
company with greater resources to compete in the evolving reinsurance and
insurance marketplace.
You should review the background and reasons for the merger described in
greater detail at pages 21 through 28.
Q.: WHAT IS THE "EXCHANGE RATIO?"
A.: The exchange ratio of 0.825 represents the fraction of a share of Trenwick
common stock into which each share of Chartwell common stock will be
converted upon completion of the merger.
Please note that because the exchange ratio is fixed and the market price
of the shares of Trenwick common stock may fluctuate, Chartwell
stockholders cannot be sure of the market value of the shares of Trenwick
common stock they will receive. Depending on the market price of Trenwick
common stock when the merger is completed, the value of the Trenwick common
stock received by the Chartwell stockholders in the merger may be greater
or less than it was at the date the merger agreement was signed, the date
of this document and the date of the special meetings.
Q.: WHAT WILL HOLDERS OF CHARTWELL COMMON STOCK RECEIVE IN THE MERGER?
A.: Holders of Chartwell common stock will receive 0.825 of a share of Trenwick
common stock in exchange for each share of Chartwell common stock owned by
them. Trenwick will not issue fractional shares of Trenwick common stock.
Instead, cash will be paid with respect to fractional shares. For example,
a holder of 100 shares of Chartwell common stock would receive 82 shares of
Trenwick common stock, plus a cash payment equal to the value of 0.5 of a
share of Trenwick common stock.
Chartwell stockholders are urged to obtain current market quotations for
Trenwick common stock and Chartwell common stock. No assurance can be given
as to the future prices or markets for Trenwick common stock.
1
<PAGE> 12
Q.: WHAT WILL HOLDERS OF TRENWICK COMMON STOCK RECEIVE IN THE MERGER?
A.: Holders of Trenwick common stock will retain the shares of Trenwick common
stock that they currently own and such shares will remain unchanged.
However, as a result of the merger, they will own shares of a larger, more
diversified company, as more fully described in this document.
Q.: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER?
A.: For United States federal income tax purposes, if you are a Chartwell
stockholder, we expect your exchange of shares of Chartwell common stock
for shares of Trenwick common stock will not cause you to recognize any
gain or loss. You will, however, recognize income or gain in connection
with any cash received instead of fractional shares of Trenwick common
stock. Your holding period for the Trenwick common stock received in the
merger, which determines how any gain or loss should be treated for federal
income tax purposes upon future sales of Trenwick common stock, generally
will include the holding period for the Chartwell common stock exchanged in
the merger. For a more complete description of federal income tax
considerations, see "The Merger -- Important Federal Income Tax
Consequences of the Merger" on page 42. If you are a Trenwick stockholder,
the merger will not have any tax consequences to you.
Q.: HOW WILL THE MERGER BE TREATED FOR ACCOUNTING PURPOSES?
A.: Trenwick intends to treat the merger as a "purchase" for accounting and
financial reporting purposes.
Q.: WHAT HAPPENS TO MY FUTURE DIVIDENDS?
A.: Trenwick pays a regular quarterly dividend per share on its common stock.
Trenwick intends to continue paying a regular quarterly dividend after the
merger, although Trenwick's board of directors must approve and declare all
dividends, including the amount of each dividend.
Q.: AM I ENTITLED TO APPRAISAL RIGHTS?
A.: No. Under Delaware law, which governs Trenwick and Chartwell and the
merger, you are not entitled to appraisal rights.
Q.: WHY DOES TRENWICK WANT TO ADD SHARES TO THE STOCK PLAN?
A.: After the merger is completed, many former Chartwell employees will become
eligible to participate in the plan. Trenwick's board of directors believes
that the addition of shares to the plan is advisable in light of these
additional eligible employees.
Q.: WHAT DO I NEED TO DO NOW?
A.: After carefully reading and considering the information contained in this
document, please indicate on your proxy card how you want to vote, and sign
and mail it in the enclosed prepaid return envelope marked "Proxy" as soon
as possible, so that your shares may be represented and voted at the
appropriate special meeting, as indicated below:
TRENWICK SPECIAL MEETING
OCTOBER 7, 1999
9:00 A.M., LOCAL TIME
HYATT REGENCY GREENWICH
1800 EAST PUTNAM AVENUE
OLD GREENWICH, CONNECTICUT 06870
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<PAGE> 13
CHARTWELL SPECIAL MEETING
OCTOBER 7, 1999
9:00 A.M., LOCAL TIME
FOUR STAMFORD PLAZA
107 ELM STREET, 15TH FLOOR
STAMFORD, CONNECTICUT 06902
Q.: WHAT VOTE IS REQUIRED FOR APPROVAL?
A.: Holders of a majority of the outstanding shares of Trenwick common stock
must adopt the merger agreement and approve the merger and the related
issuance of Trenwick common stock to Chartwell stockholders in completion
of the merger. Holders of a majority of the outstanding shares of Chartwell
common stock must also adopt the merger agreement and approve the merger.
The affirmative vote of a majority of votes duly cast is required to
approve the Trenwick stock plan amendment. For this reason it is important
that Trenwick and Chartwell stockholders each return their signed proxy
cards. The Trenwick and Chartwell boards of directors each recommends
voting "FOR" the adoption of the merger agreement and the approval of the
merger. The Trenwick board of directors unanimously recommends voting "FOR"
the stock plan amendment.
Q.: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A.: Your broker will vote your shares only if you provide instructions on how
to vote. You should follow the directions provided by your broker regarding
how to instruct your broker to vote your shares. Without instructions, your
shares will not be voted on the proposed merger, which will have the same
effect as voting against the adoption of the merger agreement and approval
of the merger. However, an abstention from voting or a broker non-vote will
not have the effect of a vote against the stock plan amendment.
Q.: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A.: Yes. There are three ways in which you may revoke your proxy and change
your vote. First, you may send a written notice to the party to whom you
submitted your proxy stating that you would like to revoke your proxy.
Second, you may complete and submit a new proxy card. Third, you may attend
the Trenwick or Chartwell special meeting, as applicable, and vote in
person. Simply attending the Trenwick or Chartwell special meeting,
however, will not revoke your proxy. If you have instructed a broker to
vote your shares, you must follow directions received from your broker to
change your vote.
Q.: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A.: No. After the merger is completed, Trenwick will send Chartwell
stockholders written instructions for exchanging their stock certificates.
Trenwick stockholders will keep their existing stock certificates.
Q.: WHAT RISKS SHOULD I CONSIDER?
A.: Chartwell stockholders should recognize that the exchange ratio of 0.825 is
fixed. This exchange ratio will not change, even if the market price of
Trenwick or Chartwell common stock increases or decreases before the
closing of the merger. Accordingly, the market value of the Trenwick common
stock that Chartwell stockholders receive when the merger occurs may be
lower than the current market value of Chartwell common stock.
The stockholders of Trenwick and Chartwell should recognize that the merger
involves the integration of two companies that have previously operated
independently. Trenwick expects to realize increased revenues, together
with cost savings and other financial and operating benefits from the
merger, but there can be no assurance regarding when, if, or the extent to
which the combined company will be able to realize these benefits.
In addition, there are systems that the companies must integrate, including
those involving management information, accounting and finance, employee
benefits, payroll and regulatory
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<PAGE> 14
compliance. Difficulties associated with integrating the systems of Trenwick and
Chartwell could have an adverse effect on the ability of Trenwick to realize the
expected benefits of the merger.
Both companies' stockholders should review "Risk Factors" on page 17, as well as
the countervailing factors considered by each company's board of directors
described under "The Merger -- Trenwick Reasons for the Merger;
Recommendation of the Trenwick Board of Directors" and "-- Chartwell
Reasons for the Merger; Recommendation of the Chartwell Board of Directors"
on pages 23 through 28.
Q.: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A.: We are working towards completing the merger during the fourth quarter of
1999. In addition to the approvals of the holders of Trenwick common stock
and Chartwell common stock, we must also obtain certain insurance and other
regulatory approvals that are expected to be obtained at or prior to the
time of the Trenwick and Chartwell special meetings.
Q.: WILL THE COMPOSITION OF THE TRENWICK BOARD OF DIRECTORS OR ITS EXECUTIVE
OFFICERS CHANGE AS A RESULT OF THE MERGER?
A.: Yes. Once the merger is completed, Trenwick will increase the size of its
board of directors to enable its board of directors to appoint four
additional directors to be designated by Chartwell. Trenwick and Chartwell
expect that the four designees will be Richard E. Cole, Robert M.
DeMichele, Frank E. Grzelecki and John Sagan, each of whom currently is a
Chartwell director. Following the merger, Mr. Billett will continue to be
the Chairman, President and Chief Executive Officer of Trenwick and Steven
J. Bensinger, the current President of Chartwell, will become Executive
Vice President of Trenwick. The other executive officers of Trenwick upon
completion of the merger will be Trenwick's current executive officers and
individual executive officers of Chartwell appointed by the Trenwick board
of directors.
Q.: WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETINGS?
A.: The adoption of the merger agreement and approval of the merger are the
only matters we know of that will be voted on at the Chartwell meeting. The
adoption of the merger agreement, the approval of the merger and the
related issuance of Trenwick common stock to Chartwell stockholders in
completion of the merger and the stock plan amendment are the only matters
we know of that will be voted on at the Trenwick meeting. If other matters
are properly presented at either meeting, the proxyholders will vote your
shares as they see fit.
Q.: WILL THE RIGHTS OF CHARTWELL STOCKHOLDERS CHANGE AS A RESULT OF THE MERGER?
A.: Currently, Chartwell stockholder rights are governed by Delaware law and
Chartwell's Restated Certificate of Incorporation and Amended and Restated
By-Laws, and Trenwick stockholder rights are governed by Delaware law and
Trenwick's Restated Certificate of Incorporation and By-Laws. After the
merger, Chartwell stockholders will become stockholders of Trenwick, and
therefore their rights will be governed by Delaware law and Trenwick's
Restated Certificate of Incorporation and By-Laws. For a summary of
important differences between the rights of Chartwell stockholders and the
rights of Trenwick stockholders, see "Comparison of Rights of Trenwick
Stockholders and Chartwell Stockholders" on pages 93 through 100.
Q.: WHOM SHOULD STOCKHOLDERS CALL WITH QUESTIONS AND TO OBTAIN ADDITIONAL
COPIES OF THE JOINT PROXY STATEMENT/PROSPECTUS?
A.: If you have more questions about the merger or if you would like to obtain
additional copies of this document, you should contact the appropriate
company as follows:
Trenwick stockholders should call D.F. King & Co. toll-free at
1-800-431-9629.
Chartwell stockholders should call Corporate Investor Communications, Inc.
toll-free at 1-877-393-4963.
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<PAGE> 15
THE COMPANIES (PAGES 84 AND 85)
TRENWICK GROUP INC.
One Canterbury Green
Stamford, Connecticut 06901
(203) 353-5500
Trenwick is a holding company which owns and operates two principal
companies, Trenwick America Reinsurance Corporation and Trenwick International
Limited. Trenwick America Re provides treaty and facultative reinsurance to U.S.
insurance companies for property and casualty risks. Its statutory surplus was
$312.1 million as of June 30, 1999. Trenwick America Re is licensed or otherwise
authorized to do business in all fifty states and the District of Columbia.
Trenwick International underwrites treaty and facultative reinsurance as well as
specialty insurance on a worldwide basis. Its statutory surplus was $127.8
million as of June 30, 1999. Trenwick International is authorized to write
insurance in over 30 countries and participates in the London market for
worldwide reinsurance.
CHARTWELL RE CORPORATION
Four Stamford Plaza
107 Elm Street
Stamford, Connecticut 06902
(203) 705-2500
Chartwell is an insurance holding company with underwriting and service
operations which conducts its business in the United States and in the Lloyd's
market through three principal operating subsidiaries. Chartwell Reinsurance
Company underwrites treaty reinsurance for casualty, property, marine and
aviation risks. The Insurance Corporation of New York writes specialty property
and casualty insurance programs. Chartwell Managing Agents Limited manages seven
Lloyd's syndicates with a total underwriting capacity for 1999 of approximately
L300 million (approximately $500 million).
THE SPECIAL MEETINGS (PAGES 69 AND 70 AND PAGES 79 THROUGH 81)
The Trenwick special meeting will be held on October 7, 1999 at 9:00 a.m.,
local time, at the Hyatt Regency Greenwich located at 1800 East Putnam Avenue,
Old Greenwich, Connecticut 06870. At the Trenwick special meeting, Trenwick
stockholders will be asked to adopt the merger agreement, to approve the merger
and the related issuance of Trenwick common stock to Chartwell stockholders in
completion of the merger and to approve the stock plan amendment. Trenwick
stockholders also will be asked to consider any other matters properly brought
before shareholders at the meeting.
The Chartwell special meeting will be held on October 7, 1999 at 9:00 a.m.,
local time, at Four Stamford Plaza, 107 Elm Street, 15th Floor, Stamford,
Connecticut 06902. At the Chartwell special meeting, Chartwell stockholders will
be asked to adopt the merger agreement and to approve the merger. Chartwell
stockholders also will be asked to consider any other matters properly brought
before shareholders at the meeting.
RECORD DATE; VOTING POWER; QUORUM; VOTE REQUIRED (PAGES 69 AND 70 AND PAGES 80
AND 81)
You may vote at the Trenwick special meeting or the Chartwell special
meeting if you owned Trenwick common stock or Chartwell common stock at the
close of business (5:00 p.m., New York City time) on the record date, which is
September 1, 1999.
On the record date, there were 10,630,510 shares of Trenwick common stock
outstanding and entitled to vote. Holders of Trenwick common stock are entitled
to one vote at the Trenwick special meeting for each share of Trenwick common
stock owned by them on the record date.
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<PAGE> 16
On the record date, there were 9,641,854 shares of Chartwell common stock
outstanding and entitled to vote. Holders of Chartwell common stock are entitled
to one vote at the Chartwell special meeting for each share of Chartwell common
stock owned by them on the record date.
The presence (in person or by proxy) of holders of record of a majority of
the outstanding shares of Trenwick common stock and Chartwell common stock will
constitute a quorum at the Trenwick special meeting and the Chartwell special
meeting, respectively.
The affirmative vote of the holders of a majority of the shares of Trenwick
common stock and Chartwell common stock outstanding on the record date is
required to adopt the merger agreement. The affirmative vote of a majority of
the votes duly cast is required to approve the Trenwick stock plan amendment.
THE MERGER
GENERAL (PAGE 20)
We are proposing a merger in which Chartwell will merge with and into
Trenwick, with Trenwick being the surviving corporation. Trenwick will continue
as a Delaware corporation and will retain its Restated Certificate of
Incorporation and By-Laws. After the merger, Chartwell will no longer exist.
WHAT YOU WILL RECEIVE
CHARTWELL STOCKHOLDERS (PAGE 20)
As a result of the merger, you will receive 0.825 of a share of Trenwick
common stock for each share of Chartwell common stock that you own on the date
of the merger. We refer to this number as the "exchange ratio" throughout this
document. No fractional shares of Trenwick common stock will be issued in the
merger. Instead, you will receive cash in payment of any fractional shares in an
amount equal to your proportionate share of the net proceeds from the sale by
the exchange agent (as described in this document) of the excess undistributed
shares of Trenwick common stock that were deposited with the exchange agent in
connection with the merger.
YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATES UNTIL INSTRUCTED TO DO SO
AFTER THE MERGER IS COMPLETED.
TRENWICK STOCKHOLDERS (PAGE 20)
As a Trenwick stockholder, you will retain all of your shares of Trenwick
common stock, which will remain unchanged. However, you will own shares of a
larger, more diversified company, as more fully described in this document.
YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATES BECAUSE YOU WILL NOT
EXCHANGE YOUR STOCK CERTIFICATES IN CONNECTION WITH THE MERGER.
OWNERSHIP OF TRENWICK FOLLOWING THE MERGER (PAGE 20)
We estimate that approximately 7,971,887 shares of Trenwick common stock
will be issued to Chartwell stockholders (and holders of outstanding options to
purchase Chartwell common stock under Chartwell's Sharesave Scheme) upon
completion of the merger. These shares will represent approximately 42.9% of the
outstanding shares of Trenwick common stock after the merger. Likewise, the
shares of Trenwick common stock held by Trenwick stockholders before the merger
will represent approximately 57.1% of the outstanding shares of Trenwick common
stock after the merger. Trenwick stockholders will continue to own their
existing shares after the merger.
6
<PAGE> 17
REASONS FOR THE MERGER
TRENWICK GROUP INC. (PAGES 23 THROUGH 25)
The Trenwick board of directors determined to recommend adoption of the
merger agreement and approval of the merger and the related issuance of Trenwick
common stock to Chartwell stockholders in completion of the merger based on a
number of factors, including the following:
- the prospects of a larger, more competitive company as a
result of the merger;
- the competitive importance of market position, size and
adequacy of financial resources in the reinsurance industry;
- the financial analyses, presentations and opinion of
Trenwick's financial advisor, Donaldson, Lufkin and Jenrette
Securities Corporation, also known as DLJ;
- Trenwick's expected product and geographic diversification in
the U.S. and internationally;
- Trenwick management's expectations that the merger will
result in earnings accretion to its stockholders;
- the combination is consistent with one of Trenwick's
long-term business strategies of profitable premium growth
through geographic and product line diversification;
- that, as a condition to Trenwick's willingness to enter into
the merger agreement, Trenwick required, and Chartwell
agreed, that Trenwick be indemnified and guaranteed,
effective upon completion of the merger, against adverse
reserve development in Chartwell's business, including its
operations at Lloyd's, and that such indemnity and guarantee
be accomplished through a reinsurance agreement which is an
express condition to the completion of the merger;
- the business, operations, financial condition, earnings and
prospects of both Trenwick and Chartwell, as well as current
industry, economic and market conditions; and
- the structure of the merger and the terms of the merger
agreement, including the fact that the merger is intended to
be a tax-free "reorganization" for federal income tax
purposes.
CHARTWELL RE CORPORATION (PAGES 25 THROUGH 28)
The Chartwell board of directors determined to recommend adoption of the
merger agreement and approval of the merger based on a number of factors,
including the following:
- the Chartwell board of directors' review of the financial
condition, results of operation, business and prospects of
Chartwell and Trenwick.
- the current industry, economic and market conditions;
- the prospects of Chartwell as a stand-alone company given the
increased dominance in the reinsurance business of large
reinsurance companies with significant scale and critical
mass;
- a consideration of Chartwell's strategic alternatives;
- the financial analyses, presentations, and opinion of
Chartwell's financial advisor, Goldman, Sachs & Co.;
- the form of the merger consideration, the structure of the
merger, and the fixed exchange ratio, which, based on the
price of Trenwick common stock and Chartwell common stock in
the period before the merger agreement, represented a
substantial premium over the market price of Chartwell common
stock during that same period
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<PAGE> 18
and which will not be adjusted due to any changes in the
price of Chartwell or Trenwick stock;
- the strategic fit between Chartwell and Trenwick and
potential synergies in connection with the merger;
- the expected treatment of the merger as a tax-free
"reorganization" for federal income tax purposes; and
OPINIONS OF FINANCIAL ADVISORS (PAGES 30 THROUGH 42)
In deciding to adopt the merger agreement and approve the merger, the
Trenwick board of directors considered the opinion of its financial advisor,
DLJ, and the Chartwell board of directors considered the opinion of its
financial advisor, Goldman Sachs. These opinions, dated June 21, 1999, are
attached as Appendices C and D to this document. These opinions set forth
assumptions made, matters considered and limitations on the reviews undertaken
in connection with the opinions. We encourage you to read these opinions
carefully and completely. These opinions are directed to the boards of directors
and do not constitute a recommendation to any stockholder as to how that
stockholder should vote in connection with the merger or any of the transactions
proposed to be voted upon.
IMPORTANT FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
(PAGES 42 AND 43)
Based on certain assumptions, we expect the merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended. As a result, no gain or
loss will be recognized by Trenwick or Chartwell in the merger, and Chartwell
stockholders who exchange all of their Chartwell common stock solely for shares
of Trenwick common stock will recognize no gain or loss (except with respect to
cash received in lieu of fractional shares, which is generally taxed as a
capital gain or loss). Chartwell stockholders who sell shares of Chartwell
common stock in the market prior to the merger generally would recognize capital
gain or loss in the amount equal to the difference between the amount received
in the sale and the stockholder's tax basis in the shares that are sold.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS (PAGES 71 THROUGH 73 AND
PAGES 82 AND 83)
On the record date, directors and executive officers of Trenwick and its
affiliates were beneficial owners of an aggregate of 1,224,202 shares (excluding
shares purchasable upon exercise of options or warrants and including 638,419
shares deemed to be beneficially owned by such persons but as to which
beneficial ownership is disclaimed) of Trenwick common stock or approximately
11.5% of the voting power of the Trenwick common stock outstanding on the record
date.
On the record date, directors and executive officers of Chartwell and its
affiliates were beneficial owners of an aggregate of 900,570 shares (excluding
shares purchasable upon exercise of options or warrants) of Chartwell common
stock or approximately 9.3% of the voting power of the Chartwell common stock
outstanding on the record date.
APPROVALS (PAGES 43 AND 44)
Trenwick and Chartwell are both required to make filings with or obtain
approvals from certain domestic and international regulatory authorities in
connection with the merger, including approvals of state insurance regulatory
authorities, Lloyd's and the United Kingdom Treasury. All necessary applications
and notices have been filed or are in the process of being filed.
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<PAGE> 19
CONDITIONS TO THE MERGER (PAGES 53 AND 54)
The parties' obligations to consummate the merger are subject to the
satisfaction or waiver of certain conditions, including, among others:
- the holders of a majority of the outstanding common stock of
Trenwick and Chartwell must adopt the merger agreement and
approve the merger;
- the waiting period under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended, must expire or
terminate;
- there must be no injunction or other legal restraint
prohibiting the merger;
- Trenwick and Chartwell must receive all governmental and
other consents, approvals, permits and authorizations that we
have to obtain prior to the effective time of the merger;
- Trenwick and Chartwell have to obtain tax and other opinions
from their lawyers;
- our claims-paying or financial strength ratings from A.M.
Best & Co. and Standard & Poor's Corporation must not be
lowered or placed on credit watch with negative implications
(other than as a result of the announcement or completion of
the merger), unless such action is reversed at or before the
completion of the merger;
- the registration statement for the Trenwick common stock to
be issued in the merger must be declared effective by the
SEC; and
- the shares of Trenwick common stock to be issued in the
merger must be approved for trading on NASDAQ.
As a condition to Trenwick's willingness to enter into the merger
agreement, Trenwick also required, and Chartwell agreed, that Trenwick be
indemnified and guaranteed, effective upon completion of the merger, against
adverse reserve development in Chartwell's business, including its operations at
Lloyd's, and that such indemnity and guarantee be accomplished through a
reinsurance agreement which is an express condition to the completion of the
merger.
Trenwick's obligations to complete the merger are subject to the
satisfaction or waiver of certain additional conditions, including, among
others, that Chartwell must not have suffered a material adverse effect in its
business or operations since the date of the merger agreement and that the
representations and warranties of Chartwell in the merger agreement must be true
at the completion of the merger. Likewise, Chartwell's obligation to complete
the merger is subject to the satisfaction or waiver of certain additional
conditions, including, among others, that Trenwick must not have suffered a
material adverse effect in its business or operations since the date of the
merger agreement and that the representations and warranties of Trenwick in the
merger agreement must be true at the completion of the merger.
If the law permits, either of us could choose to waive a condition to our
obligation to complete the merger, even though that condition has not been
satisfied. We cannot be certain when, or if, the conditions to the merger will
be satisfied or waived, or that the merger will be completed.
CHARTWELL EMPLOYEE AND DIRECTOR STOCK OPTIONS; WARRANTS (PAGES 48 AND 49)
Each employee and director option to purchase Chartwell common stock shall
become immediately exercisable in full at the time of the approval of the merger
by Chartwell stockholders. Upon completion of the merger, each of these options
shall be assumed by Trenwick and converted into an option to acquire Trenwick
common stock. The number of shares of Trenwick common stock subject to each
assumed option and the exercise price of each assumed option will reflect the
exchange ratio. In addition, upon completion of the merger, each then
outstanding warrant to purchase Chartwell common stock will be assumed by
Trenwick in accordance with its terms, and each option, whether or not then
vested or exercisable, to purchase Chartwell common stock under its Sharesave
Scheme 1997 (a stock purchase
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<PAGE> 20
plan for Chartwell's United Kingdom employees) will be converted into shares of
Trenwick common stock based upon the exchange ratio, plus cash in lieu of any
fractional shares of Trenwick common stock.
TERMINATION; EXPENSES AND TERMINATION FEES (PAGES 59 THROUGH 61)
We may agree in writing to terminate the merger agreement at any time
without completing the merger, even after the stockholders of both companies
approve it. In addition, the merger agreement may be terminated under several
circumstances, including if:
- the merger agreement is not adopted by Trenwick's or
Chartwell's stockholders;
- either Trenwick or Chartwell materially breaches any of its
material obligations contained in the merger agreement, or
breaches any of its representations and warranties in the
merger agreement and that breach would be reasonably likely
to have a material adverse effect on the financial condition,
business or results of operations, in either case such that
the conditions to the other party's obligation to complete
the merger cannot be satisfied, and the breach cannot be
cured;
- any government or court issues an order or takes another
action enjoining or prohibiting the merger and such action
has become final and non-appealable;
- the merger is not completed by December 31, 1999; or
- the Chartwell board of directors withdraws its recommendation
of the merger agreement or recommends that Chartwell's
stockholders adopt a competing acquisition proposal.
We have agreed that if the merger agreement is terminated under certain
circumstances, including by Chartwell in order to accept a superior proposal
from a third party, Chartwell must pay to Trenwick a termination fee of $6.5
million.
Whether or not the merger is completed, we will each pay our own fees and
expenses, except that we will divide evenly the costs and expenses that we have
incurred in printing and mailing this document and in connection with certain
regulatory filings.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 45)
A number of directors and executive officers of Trenwick and Chartwell have
interests in the merger as employees or directors that are different from, or in
addition to, yours as a stockholder. If we complete the merger:
- certain directors and members of the existing senior
management of Chartwell will become members of the board of
directors or the senior management of Trenwick, and the
current directors and members of existing senior management
of Trenwick will continue in their positions;
- options to purchase Chartwell common stock held by
Chartwell's directors and officers will be automatically
converted into options to acquire shares of Trenwick common
stock, adjusted to account for the exchange ratio;
- the executive officers of Chartwell will receive severance
benefits in accordance with their employment or severance
agreements if their employment is terminated under certain
conditions after the merger; and
- Trenwick will continue specific indemnification arrangements
and directors' and officers' liability insurance for existing
directors and officers of Chartwell.
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NO SOLICITATION (PAGES 57 THROUGH 59)
Until the merger agreement is terminated, Chartwell is prohibited from,
among other things, initiating, soliciting or encouraging the submission of any
proposal for, or entering into any discussions or negotiations relating to,
certain transactions, including a merger or consolidation of Chartwell and its
subsidiaries or the sale or other disposition of a business that constitutes 15%
or more of the net revenues, net income, or assets of Chartwell and its
subsidiaries.
If, however, before obtaining stockholder approval of the merger agreement,
the Chartwell board of directors, after consultation with legal counsel,
determines in good faith that it must do so in order to comply with its
fiduciary duties to stockholders, then Chartwell may, in response to an
unsolicited proposal which meets certain criteria, participate in discussions
and negotiations regarding the proposal.
AMENDMENT AND WAIVER (PAGE 61)
We may agree to amend the merger agreement, including changing the
structure of the merger, before its completion. After Chartwell stockholders or
Trenwick stockholders adopt the merger agreement, however, we cannot amend the
merger agreement in any way that requires further stockholder approval under
applicable law unless we first obtain that approval. Also, each of us may waive
our right to require the other party to adhere to the terms and conditions of
the merger agreement, to the extent legally permissible.
RELATED AGREEMENTS AND TRANSACTIONS (PAGES 61 THROUGH 63)
REINSURANCE AGREEMENT (PAGES 61 AND 62)
As a condition to Trenwick's willingness to enter into the merger
agreement, Trenwick required, and Chartwell agreed, that Trenwick be indemnified
and guaranteed, effective upon completion of the merger, against adverse reserve
development in Chartwell's business, including its operations at Lloyd's, and
that such indemnity and guarantee be accomplished through a reinsurance
agreement which is an express condition to the completion of the merger. This
reinsurance agreement will provide up to $100 million in coverage.
STOCK OPTION AGREEMENT (PAGES 62 AND 63)
As an inducement to Trenwick to enter into the merger agreement, Chartwell
granted Trenwick an irrevocable option to purchase in certain circumstances
1,918,729 shares of Chartwell common stock (equal to approximately 19.9% of the
outstanding Chartwell common stock) at a per share price of $23.82, equal to the
imputed value of a share of Chartwell common stock as of the date of the merger
agreement based upon Trenwick's stock price and the exchange ratio.
Trenwick may exercise the stock option following certain events giving rise
to the payment of a termination fee under the merger agreement. Trenwick's total
profit from the $6.5 million termination fee under the merger agreement plus the
excess, if any, of the amount received by Trenwick upon the sale of the
Chartwell common stock acquired under the stock option agreement over its
exercise price may not exceed $9.0 million.
The stock option agreement is intended to increase the likelihood that the
merger will be consummated and to discourage third parties from seeking to
acquire Chartwell. The stock option agreement may discourage, but does not
preclude, a third party from proposing a competing transaction, including one
that some Chartwell stockholders might perceive to be more favorable to
Chartwell's stockholders than the merger.
THE TRENWICK STOCK PLAN AMENDMENT (PAGES 64 THROUGH 68)
Trenwick's 1993 Stock Option Plan provides for awards of stock options,
restricted shares and stock appreciation rights to executive officers and other
key employees of Trenwick and its subsidiaries as determined by the compensation
committee of Trenwick's board of directors. Trenwick expects that upon
11
<PAGE> 22
the completion of the merger, a number of Chartwell employees who become
Trenwick employees will be eligible to participate in the plan. There currently
are 617,107 shares available for future awards under the plan. Trenwick's board
of directors believes that, in light of these new participants, it is advisable
to make an additional 125,000 shares available under the plan for future awards
to permit the plan to operate as intended for the foreseeable future. The
amendment would take effect upon the completion of the merger.
OTHER INFORMATION
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (PAGE 19)
Shares of Trenwick common stock are listed on the NASDAQ Stock Market
National Market under the symbol "TREN" and shares of Chartwell common stock are
listed on the NYSE under the symbol "CWL." On June 21, 1999 and September 3,
1999, the last full trading day on NASDAQ and the NYSE prior to the public
announcement of the merger and the last full trading day prior to the date of
this document, respectively, Trenwick common stock closed at $28.88 and $22.38
per share, respectively, and Chartwell common stock closed at $15.13 and $17.56
per share, respectively. Assuming the exchange ratio of 0.825 of a share of
Trenwick common stock per share of Chartwell common stock, the equivalent price
of a share of Chartwell common stock on June 21, 1999 was $23.82 and on
September 3, 1999 was $18.46.
LISTING OF TRENWICK COMMON STOCK (PAGE 29)
Trenwick will apply to list the shares of common stock to be issued in
connection with the merger on NASDAQ.
Following the merger, Trenwick common stockholders will be able to trade
shares of Trenwick common stock on NASDAQ. Chartwell stockholders, however, will
no longer be able to trade Chartwell common stock on any exchange. Trenwick
intends to apply to list its common shares on the NYSE as soon as practicable
following the merger.
RISK FACTORS (PAGE 17)
In determining whether to vote to adopt the merger agreement, Trenwick and
Chartwell stockholders should carefully consider the matters set forth under the
caption "Risk Factors."
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGES 17 THROUGH 19)
We have each made forward-looking statements in this document (and in
documents that are incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations of Trenwick or Chartwell. Also,
when we use words such as "believes," "expects," "anticipates" or similar
expressions, we are making forward-looking statements.
Factors that may cause actual results to differ from those contemplated by
the forward-looking statements include, among others, the following
possibilities:
- Competitive pressures in the reinsurance and insurance
industries could increase significantly and could generally
reduce operating margins.
- Expected cost savings may not be fully realized within the
anticipated time frame.
- Costs or difficulties related to the integration of the
businesses of Trenwick and Chartwell could be greater than
expected.
- Changes in estimated overall adequacy of loss and loss
adjustment expense reserves could impact net income or
statutory surplus adequacy.
Stockholders should note that many factors, some of which are discussed
elsewhere in this document and in the documents which are incorporated by
reference, could affect the future financial results of Trenwick and Chartwell
and could cause those results to differ materially from those expressed in our
forward-looking statements contained or incorporated by reference in this
document.
12
<PAGE> 23
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth certain information regarding earnings,
dividends and book value per share for Trenwick common stock and Chartwell
common stock on an historical and pro forma basis. The information set forth
below should be read in conjunction with the historical consolidated financial
statements of Trenwick and Chartwell, including the notes thereto, incorporated
by reference in this document and the selected consolidated financial data
appearing elsewhere in this document. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
TRENWICK COMMON STOCK
Net income per share -- Basic:
Historical................................................ $ 1.30 $ 2.99
Pro Forma................................................. $ 1.14 $ 3.28
Cash dividends per share:
Historical................................................ $ 0.52 $ 1.00
Pro Forma................................................. $ 0.52 $ 1.00
Book value per share:
Historical................................................ $30.34 $31.49
Pro Forma................................................. $29.05 (b)
CHARTWELL COMMON STOCK
Net income per share -- Basic:
Historical................................................ $ 0.75 $ 3.10
Pro Forma Equivalent(a)................................... $ 0.94 $ 2.71
Cash dividends per share:
Historical................................................ $ 0.08 $ 0.16
Pro Forma Equivalent(a)................................... $ 0.43 $ 0.83
Book value per share:
Historical................................................ $29.34 $30.42
Pro Forma Equivalent(a)................................... $23.97 (b)
</TABLE>
- ---------------
(a) The pro forma equivalent per share data is calculated by multiplying 0.825,
which is the exchange ratio in the merger for the conversion of Chartwell
common stock into Trenwick common stock, by Trenwick's pro forma net income
per share, cash dividends per share, and book value per share, which have
been prepared using adjustments included in the Unaudited Pro Forma Combined
Consolidated Financial Information contained elsewhere in this document.
(b) Not required.
13
<PAGE> 24
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following tables set forth selected consolidated financial data of
Trenwick and Chartwell for the last five years ended December 31, 1998 and for
the six months ended June 30, 1999 and 1998. The selected consolidated financial
data of Trenwick and Chartwell have been derived from and should be read in
conjunction with their consolidated financial statements, including the notes
thereto, which are incorporated herein by reference. The financial data
presented below for unaudited interim periods are not necessarily indicative of
results which may be expected for any other interim or annual period. See "Where
You Can Find More Information."
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF TRENWICK
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
----------------------- --------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net premiums written...................... $ 158,130 $ 119,449 $ 250,219 $ 195,230 $226,364 $197,162 $139,635
========== ========== ========== ========== ======== ======== ========
Net premiums earned....................... $ 125,039 $ 116,788 $ 245,561 $ 190,156 $211,069 $177,394 $132,683
Net investment income..................... 27,140 27,360 56,316 48,402 41,226 36,828 33,932
Net realized investment gains (losses).... 3,029 1,260 9,016 2,304 299 368 (196)
Other income.............................. 113 332 421 10 -- -- --
---------- ---------- ---------- ---------- -------- -------- --------
Total revenues............................ $ 155,321 $ 145,740 $ 311,314 $ 240,872 $252,594 $214,590 $166,419
========== ========== ========== ========== ======== ======== ========
Income before extraordinary item.......... $ 13,770 $ 18,220 $ 34,792 $ 36,289 $ 33,848 $ 29,841 $ 20,282
Extraordinary loss on debt redemption net
of $558 income tax benefit.............. -- -- -- (1,037) -- -- --
---------- ---------- ---------- ---------- -------- -------- --------
Net income................................ $ 13,770 $ 18,220 $ 34,792 $ 35,252 $ 33,848 $ 29,841 $ 20,282
========== ========== ========== ========== ======== ======== ========
PER SHARE DATA(1)
Basic earnings per share:
Income before extraordinary item.......... $ 1.30 $ 1.53 $ 2.99 $ 3.12 $ 3.40 $ 3.09 $ 2.10
Extraordinary loss........................ -- -- -- (.09) -- -- --
---------- ---------- ---------- ---------- -------- -------- --------
Net income................................ $ 1.30 $ 1.53 $ 2.99 $ 3.03 $ 3.40 $ 3.09 $ 2.10
========== ========== ========== ========== ======== ======== ========
Diluted earnings per share:
Income before extraordinary item.......... $ 1.28 $ 1.51 $ 2.95 $ 3.01 $ 2.85 $ 2.59 $ 1.88
---------- ---------- ---------- ---------- -------- -------- --------
Net income................................ $ 1.28 $ 1.51 $ 2.95 $ 3.01 $ 2.85 $ 2.59 $ 1.88
========== ========== ========== ========== ======== ======== ========
Dividends per common share................ $ 0.52 $ 0.50 $ 1.00 $ 0.97 $ 0.83 $ 0.75 $ 0.67
========== ========== ========== ========== ======== ======== ========
BALANCE SHEET DATA
Investments and cash...................... $ 957,177 $1,021,399 $1,005,211 $ 864,324 $754,210 $653,704 $551,784
Total assets.............................. 1,385,057 1,390,338 1,392,261 1,085,956 920,804 820,930 727,245
Unpaid claims and claims expenses......... 666,101 660,009 682,428 518,387 467,177 411,874 389,298
Convertible debentures.................... -- -- -- -- 103,500 103,500 103,500
6.7% senior notes due 2003................ 75,000 75,000 75,000 -- -- -- --
Company-obligated mandatorily redeemable
preferred capital securities of
subsidiary trust-holding solely junior
subordinated debentures of Trenwick
Group Inc............................... 110,000 110,000 110,000 110,000 -- -- --
Total common stockholders' equity......... 322,588 372,774 348,029 357,649 265,753 240,776 188,213
Shares of common stock outstanding........ 10,631 12,057 11,051 11,951 10,088 9,886 9,660
Book value per common share............... $ 30.34 $ 30.92 $ 31.49 $ 29.93 $ 26.34 $ 24.36 $ 19.48
CERTAIN FINANCIAL RATIOS
GAAP Combined ratio....................... 103.0% 99.4% 102.3% 96.5% 95.8% 95.6% 103.2%
Net premiums written to surplus ratio..... N/A N/A 0.54:1 0.61:1 0.79:1 0.77:1 0.59:1
</TABLE>
- ---------------
Amounts for 1998 reflect the results of Trenwick International, accounted for as
a purchase, from the February 27, 1998 date of acquisition.
All share and per share information reflects a 3 for 2 stock split paid on April
15, 1997.
(1) The earnings per share amounts prior to 1997 have been restated to comply
with Statement of Financial Accounting Standards No. 128 -- Earnings per
Share.
14
<PAGE> 25
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF CHARTWELL
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
----------------------- ------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
UNDERWRITING OPERATIONS:
Net premiums written................. $ 161,071 $ 101,528 $ 217,054 $ 268,260 $ 192,251 $ 123,314 $113,962
========== ========== ========== ========== ========== ========== ========
Net premiums earned.................. $ 161,994 $ 109,173 $ 229,504 $ 245,700 $ 209,503 $ 120,258 $102,698
Net investment income................ 25,967 23,640 47,545 42,228 42,995 18,917 13,889
Net realized capital gains
(losses)........................... (330) 60 (339) (3) 1,106 3,109 (3,495)
---------- ---------- ---------- ---------- ---------- ---------- --------
Total revenues................... $ 187,631 $ 132,873 $ 276,710 $ 287,925 $ 253,604 $ 142,284 $113,092
---------- ---------- ---------- ---------- ---------- ---------- --------
SERVICE OPERATIONS:
Service and other revenue............ $ 5,317 $ 6,639 $ 14,289 $ 28,322 $ 6,167 $ 1,095 $ 1,679
Equity in net earnings of
investees.......................... 700 2,071 5,327 4,794 3,559 -- --
Net investment income................ 409 337 1,092 1,104 9 44 29
---------- ---------- ---------- ---------- ---------- ---------- --------
Total revenues................... $ 6,426 $ 9,047 $ 20,708 $ 34,220 $ 9,735 $ 1,139 $ 1,708
---------- ---------- ---------- ---------- ---------- ---------- --------
CORPORATE:
Net investment income................ $ 89 $ 88 $ 232 $ 243 $ 1,085 $ 946 $ 808
Net realized capital gains
(losses)........................... -- -- 368 -- 51 90 (299)
---------- ---------- ---------- ---------- ---------- ---------- --------
Total revenues................... $ 89 $ 88 $ 600 $ 243 $ 1,136 $ 1,036 $ 509
---------- ---------- ---------- ---------- ---------- ---------- --------
Net income (loss) before
extraordinary item................. $ 7,246 $ 14,759 $ 29,816 $ 27,263 $ 22,863 $ 6,239 $ (3,435)
Extraordinary item, net of tax....... -- -- -- -- 1,874 -- 465
---------- ---------- ---------- ---------- ---------- ---------- --------
Net income (loss)(1)................. 7,246 14,759 29,816 27,263 20,989 6,239 (3,900)
Less: Preferred dividends and
accretion.......................... -- -- -- -- -- -- 1,078
---------- ---------- ---------- ---------- ---------- ---------- --------
Net income (loss) attributable to
common shares...................... $ 7,246 $ 14,759 $ 29,816 $ 27,263 $ 20,989 $ 6,239 $ (4,978)
========== ========== ========== ========== ========== ========== ========
PER SHARE DATA(2):
Basic earnings (loss) per share...... $ 0.75 $ 1.53 $ 3.10 $ 2.84 $ 2.31 $ 1.66 $ (0.84)
========== ========== ========== ========== ========== ========== ========
Diluted earnings (loss) per share.... $ 0.75 $ 1.47 $ 3.00 $ 2.74 $ 2.29 $ 1.65 $ (0.84)
========== ========== ========== ========== ========== ========== ========
Cash dividends declared.............. $ 0.08 $ 0.08 $ 0.16 $ 0.16 $ 0.12 -- --
========== ========== ========== ========== ========== ========== ========
BALANCE SHEET DATA (GAAP)(3):
Investments and cash(4).............. $ 855,749 $ 776,011 $ 876,465 $ 764,253 $ 724,694 $ 705,448 $275,136
Total assets......................... 1,598,399 1,476,889 1,536,809 1,375,484 1,257,864 1,132,838 410,159
Loss and LAE reserves................ 936,243 834,011 878,617 788,240 747,858 741,467 232,733
Long term debt....................... 100,816 108,178 108,477 104,126 107,297 95,000 75,000
Total common stockholders' equity.... 282,864 278,600 292,863 260,497 225,990 152,482 56,339
Shares of common stock outstanding... 9,642 9,627 9,628 9,610 9,584 6,859 3,755
Book value per common share.......... 29.34 28.94 30.42 27.11 23.58 22.23 15.00
CERTAIN FINANCIAL RATIOS
GAAP Combined ratio.................. 104.3% 96.8% 96.2% 101.9% 104.2% 104.2% 109.0%
Net premiums written to surplus
ratio.............................. N/A N/A 0.72:1 1.02:1 0.81:1 1.02:1 1.02:1
</TABLE>
- ---------------
(1) The net loss for the year ended December 31, 1994 includes $1.2 million of
recapitalization expenses.
(2) The earnings per share amounts prior to 1997 have been restated to comply
with Statement of Financial Accounting Standards No. 128 -- Earnings per
Share.
(3) The balance sheet data at December 31, 1996 reflects the acquisition of
Chartwell Managing Agents Limited and at December 31, 1995 reflects the
merger of Piedmont Management Company Inc. with and into Chartwell.
(4) Includes Chartwell's share of cash and investments held by syndicates
managed by Chartwell Managing Agents Limited, totaling $100.2 million at
December 31, 1998 and $122.6 million at June 30, 1999, respectively.
15
<PAGE> 26
SELECTED UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
The selected unaudited pro forma combined consolidated financial
information has been derived from, or prepared on a basis consistent with, the
unaudited pro forma combined consolidated financial information included
elsewhere in this document. This data is presented for illustrative purposes
only and is not necessarily indicative of the combined results of operations or
financial position of the combined companies that would have occurred if the
merger had been completed on the assumed dates, nor is it necessarily indicative
of the future operating results or financial position of the combined companies.
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
----------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Net premiums earned......................................... $ 287,033 $475,065
Total revenues.............................................. 349,360 609,118
Net income.................................................. 21,288 64,281
Basic earnings per share.................................... $ 1.14 $ 3.28
BALANCE SHEET DATA:
Total assets................................................ $3,027,261 (a)
Debt........................................................ 177,720 (a)
Contingent interest notes................................... 33,414 (a)
Company-obligated mandatorily redeemable preferred
capital securities of subsidiary trust holding solely
junior
subordinated debentures of Trenwick Group Inc............. 110,000 (a)
Common stockholders' equity................................. 540,433 (a)
</TABLE>
- ---------------
(a) Not required
16
<PAGE> 27
RISK FACTORS
In addition to the other information included in this document (including
the matters addressed in "Cautionary Statement Regarding Forward-Looking
Statements" below), the following matters should be considered carefully by
Trenwick and Chartwell stockholders in determining whether to adopt the merger
agreement and approve the merger.
BECAUSE THE EXCHANGE RATIO IS FIXED, CHARTWELL STOCKHOLDERS CANNOT BE SURE OF
THE MARKET VALUE OF THE TRENWICK COMMON STOCK THEY WILL RECEIVE IN THE MERGER
Chartwell stockholders will receive a fixed number of shares of Trenwick
common stock in the merger, rather than a number of Trenwick shares with a
particular market value. The exchange ratio will not be adjusted despite any
increase or decrease in the price of either Trenwick common stock or Chartwell
common stock. The prices of Trenwick common stock and Chartwell common stock
when the merger occurs may be different than their prices at the date the merger
agreement was signed, the date of this document and the date of the special
meetings. Such differences may be the result of changes in the business or
operations of Trenwick or Chartwell or the prospects of their businesses,
separately or combined, changes in market assessments of Trenwick's or
Chartwell's business, operations, or prospects, or changes in market assessments
of the likelihood that the merger will be consummated, and the timing thereof,
as well as general market and economic conditions and other factors beyond the
control of Trenwick or Chartwell. Because the exchange ratio will not be
adjusted to reflect any changes in the market value of shares of Trenwick common
stock or Chartwell common stock, the market value of Trenwick common stock
issued in the merger and the market value of Chartwell common stock surrendered
in the merger may be higher or lower than the value of those shares on any
earlier dates. In addition, at the time of the special meetings, the holders of
Chartwell common stock will not know the exact value of the Trenwick common
stock that they will receive when the merger is completed.
During the six month period ending on June 21, 1999 (the date of the merger
agreement), the closing price of Trenwick common stock varied from a low of
$25.50 to a high of $35.00 and ended that period at $28.88, and the closing
price of Chartwell common stock varied from a low of $13.44 to a high of $26.50
and ended that period at $15.13. See "Market Price and Dividend Information."
Both Trenwick stockholders and Chartwell stockholders are urged to obtain
current market quotations for Trenwick and Chartwell common stock.
TRENWICK AND CHARTWELL MAY HAVE UNEXPECTED DIFFICULTIES INTEGRATING THEIR
OPERATIONS AND REALIZING ANTICIPATED COST SAVINGS
The merger involves the integration of two companies that have previously
operated independently. Trenwick expects to realize increased revenues, cost
savings and other financial and operating benefits from the merger. However,
there can be no assurance regarding when the combined company will be able to
realize these benefits or the amount of benefits it will realize. The companies
must integrate numerous systems, including those involving management
information, accounting and finance, employee benefits, payroll and regulatory
compliance. Difficulties associated with integrating Trenwick and Chartwell
could have an adverse effect on the ability of Trenwick to realize the expected
benefits of the merger. In addition, expenses related to the consolidation of
the two companies may be greater than anticipated.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 with respect to
the financial condition, results of operations and business of each of Trenwick
and Chartwell. These statements may be made directly in this document referring
to Trenwick or Chartwell, or may be incorporated by reference to other documents
filed with the SEC by Trenwick or Chartwell and may include statements for the
period following the completion of the merger. You can find many of these
statements by looking for words such as "believes," "expects,"
17
<PAGE> 28
"anticipates," "estimates" or similar expressions in this document or in the
documents incorporated by reference.
These forward-looking statements are subject to numerous assumptions, risks
and uncertainties. Factors that may cause actual results to differ from those
contemplated by the forward-looking statements include, among others, the
following possibilities:
- Competitive pressures in the reinsurance and insurance
industries which could increase significantly and which could
generally reduce operating margins;
- An inability to realize expected cost savings within the
anticipated time frame, which could impact net income;
- Costs or difficulties related to the integration of the
businesses of Trenwick and Chartwell which could be greater
than expected;
- Changes in interest or foreign currency exchange rates which
could impact investment yields, profit margins, the market
value of investment assets and ultimately product pricing;
- Changes in capital needs which could impact net income;
- General economic or business conditions, both domestic and
foreign, which could be less favorable than expected,
resulting in, among other things, lower than expected
revenues or the inability to execute business strategies;
- Legislative or regulatory changes which could increase
Trenwick's or Chartwell's overhead costs, increase federal
and state tax assessments, restrict access to capital markets
or force participation in unprofitable markets;
- Changes in loss payment patterns or estimated retrocessional
or reinsurance recoveries on unpaid losses which could impact
cash flow and net investment income;
- Catastrophe losses which could impact net income or statutory
surplus adequacy;
- Changes in estimated overall adequacy of loss and loss
adjustment expense reserves which could impact net income or
statutory surplus adequacy;
- Changes in the availability, cost or quality of reinsurance
or retrocessional coverage;
- Necessary technological changes (including changes to address
"Year 2000" data systems issues) which may be more difficult
or expensive to make than anticipated;
- Adverse changes which could occur in the securities or
general markets or economic conditions, including, but not
limited to, inflation which could impact the value of
Trenwick's or Chartwell's investment portfolios;
- Loss of key management personnel which could impact the
development and execution of Trenwick's or Chartwell's
business strategy and impact key customer and vendor
relationships; and
- Adverse publicity or news coverage which could negatively
impact the businesses of Trenwick and Chartwell.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Chartwell's stockholders and Trenwick's stockholders
are cautioned not to place undue reliance on such statements, which speak only
as of the date of this document or, in the case of Trenwick or Chartwell
documents incorporated by reference, the date of such documents.
All subsequent written and oral forward-looking statements attributable to
Trenwick or Chartwell or any person acting on their behalf are expressly
qualified in their entirety by the cautionary statements
18
<PAGE> 29
contained or referred to in this section. Neither Trenwick nor Chartwell
undertakes any obligation to release publicly any revisions to such
forward-looking statements to reflect events or circumstances after the date of
this document or to reflect the occurrence of unanticipated events.
MARKET PRICE AND DIVIDEND INFORMATION
Trenwick common stock, par value $.10 per share, is listed on NASDAQ under
the symbol "TREN." Chartwell common stock, par value $.01 per share, is listed
on the NYSE under the symbol "CWL." The table below sets forth, for the periods
indicated, the high and low closing sales prices per share of Trenwick common
stock and Chartwell common stock, as reported by NASDAQ and on the NYSE
Composite Transaction Tape, and the dividends per share declared on Trenwick
common stock and Chartwell common stock.
<TABLE>
<CAPTION>
TRENWICK CHARTWELL
COMMON STOCK COMMON STOCK
-------------------------- --------------------------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
First Quarter.......................... $34.00 $30.67 $0.24 $28.25 $25.50 $0.04
Second Quarter......................... 38.38 31.83 0.24 30.00 24.75 0.04
Third Quarter.......................... 39.50 35.25 0.24 36.00 29.75 0.04
Fourth Quarter......................... 38.75 34.38 0.24 35.69 30.50 0.04
Year ended December 31, 1998:
First Quarter.......................... $38.00 $33.75 $0.25 $34.38 $28.56 $0.04
Second Quarter......................... 41.75 35.50 0.25 34.50 28.69 0.04
Third Quarter.......................... 39.50 28.00 0.25 30.81 25.50 0.04
Fourth Quarter......................... 34.50 27.31 0.25 29.63 22.50 0.04
Year ended December 31, 1999:
First Quarter.......................... $35.00 $25.50 $0.26 $26.00 $17.25 $0.04
Second Quarter......................... $31.94 $24.66 $0.26 $20.13 $13.44 $0.04
Third Quarter (through September 3,
1999)............................... $25.06 $19.38 $0.26 $19.50 $15.06 $0.04
</TABLE>
- ---------------
All Trenwick information reflects a three for two stock split paid on April 15,
1997.
DIVIDEND INFORMATION
Following the merger, Trenwick stockholders (including former Chartwell
stockholders who received Trenwick stock in the merger) will be entitled to
receive any dividends declared by the Trenwick board of directors. Insurance
laws applicable to Trenwick's operating subsidiaries (which following the merger
will include Chartwell's operating subsidiaries) restrict their payment of
dividends to Trenwick.
RECENT CLOSING PRICES
The following table sets forth the closing sales prices per share of
Trenwick common stock and Chartwell common stock on NASDAQ and the NYSE on June
21, 1999, the last full trading day before announcement of the execution of the
merger agreement and on September 3, 1999, the last full trading day prior to
the date of this document.
<TABLE>
<CAPTION>
TRENWICK CHARTWELL
COMMON STOCK COMMON STOCK
------------ ------------
<S> <C> <C>
June 21, 1999................................... $28.88 $15.13
September 3, 1999............................... $22.38 $17.56
</TABLE>
NUMBER OF STOCKHOLDERS
As of September 1, 1999 (the record date), there were approximately 132
stockholders of record who held shares of Trenwick common stock, as shown on the
records of Trenwick's transfer agent for such shares, and approximately 2,300
stockholders of record who held shares of Chartwell common stock, as shown on
the records of Chartwell's transfer agent for such shares.
19
<PAGE> 30
THE MERGER
The discussion in this document of the merger and the principal terms of
the merger agreement, the stock option agreement and related transactions does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, the merger agreement and the stock option agreement, each of which
is incorporated herein by reference. Copies of the merger agreement and stock
option agreement are attached as Appendices A and B to this document.
GENERAL
Trenwick and Chartwell are furnishing this document to holders of shares of
Trenwick common stock and Chartwell common stock, in connection with the
solicitation of proxies by the respective boards of directors of Trenwick and
Chartwell for use at their respective special meetings of stockholders to be
held on October 7, 1999, and at any adjournments or postponements thereof. At
the Trenwick special meeting, holders of shares of Trenwick common stock will be
asked to vote upon a proposal to adopt the merger agreement and approve the
merger of Chartwell with and into Trenwick, with Trenwick as the surviving
corporation, and the related issuance by Trenwick of 0.825 of a share of
Trenwick common stock in exchange for each outstanding share of Chartwell common
stock (and each outstanding option to purchase Chartwell common stock under
Chartwell's Sharesave Scheme 1997) in completion of the merger. At the Chartwell
special meeting, the holders of Chartwell common stock will be asked to vote
upon a proposal to adopt the merger agreement and approve the merger.
This document also constitutes a prospectus of Trenwick, which is part of
the Registration Statement on Form S-4 filed by Trenwick with the SEC under the
Securities Act, to register the shares of Trenwick common stock to be issued to
Chartwell stockholders (and holders of options that will be exchanged for
Trenwick common stock) in the merger.
In the merger, each share of Chartwell common stock issued and outstanding
immediately prior to the effective time of the merger (other than shares of
Chartwell common stock owned by Trenwick, Chartwell or their subsidiaries) will
be converted, without any action by the holders thereof, into, and become
exchangeable for 0.825 of a share of Trenwick common stock. As a result of the
merger, each option, whether or not then vested or exercisable, to purchase
Chartwell common stock under the Chartwell Sharesave Scheme 1997 (a stock
purchase plan for Chartwell's United Kingdom employees) will be converted into
shares of Trenwick common stock based upon the exchange ratio, plus cash in lieu
of any fractional shares of Trenwick common stock. See "The Merger
Agreement -- Terms of the Merger; Consideration to be Received in the Merger."
Each share of Trenwick common stock issued and outstanding immediately prior to
the effective time of the merger will continue to be issued and outstanding upon
completion of the merger. The effective time of the merger (as defined under
"-- Effective Time of the Merger") is currently expected to occur after Trenwick
and Chartwell receive requisite regulatory and stockholder approvals.
We estimate that approximately 7,971,887 shares of Trenwick common stock
will be issued to Chartwell stockholders and holders of certain Chartwell stock
options upon completion of the merger. These shares will represent approximately
42.9% of the outstanding shares of Trenwick common stock after the merger.
Likewise, the shares of Trenwick common stock held by Trenwick stockholders
before the merger will represent approximately 57.1% of the outstanding shares
of Trenwick common stock after the merger. Because the market price of Trenwick
common stock may fluctuate, the market value of the shares of Trenwick common
stock that Chartwell stockholders will receive in the merger may increase or
decrease following the merger. Chartwell stockholders are urged to obtain
current market quotations for Trenwick common stock and Chartwell common stock.
No assurance can be given as to the future prices or markets for Trenwick common
stock or Chartwell common stock.
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BACKGROUND OF THE MERGER
In December 1997, the management of Chartwell reviewed its corporate
strategies, in light of the following:
- an increased emphasis in the reinsurance industry on size and
financial strength;
- the paucity of attractive strategic acquisition opportunities
for Chartwell; and
- the limited growth opportunities for Chartwell's book of
reinsurance and insurance business in the face of stringent
price competition in the reinsurance and insurance markets.
At that time, the management of Chartwell determined that it should explore the
possibility of a business combination with a strategic partner. At a meeting on
February 4, 1998, management recommended to the board of directors of Chartwell
that it commence a review of strategic alternatives, including the exploration
of possible business combinations. The board concurred. On February 4, 1998,
Chartwell and Goldman Sachs entered into an engagement letter regarding the
terms of Goldman Sachs' engagement as a financial advisor to Chartwell.
During the spring of 1998, Chartwell and its representatives made various
contacts with third parties other than Trenwick to ascertain their level of
interest in a strategic transaction with Chartwell and to obtain preliminary
indications of the potential value of these strategic transactions to Chartwell
shareholders. Chartwell and its representatives engaged in exploratory
conversations with, and provided confidential information to, several of the
companies that expressed an interest in a possible strategic transaction. In
April and May 1998, Chartwell engaged in discussions regarding a possible
transaction with a strategic partner. These discussions were discontinued in May
1998 because the parties could not agree on the terms of a transaction. None of
the conversations with the other parties progressed past the exploratory stage.
On May 15, 1998, Chartwell terminated its February 4, 1998 engagement letter
with Goldman Sachs, but continued to discuss with third parties the possibility
of a strategic transaction.
During the spring of 1998, Chartwell also contacted Trenwick to ascertain
its interest in a possible combination of the two companies. Prior to this
contact, James F. Billett, Jr., the Chairman, President and Chief Executive
Officer of Trenwick, and Richard E. Cole, Chairman and Chief Executive Officer
of Chartwell, had from time to time engaged in informal discussions regarding
the possible combination of Trenwick and Chartwell. For various reasons,
including timing, valuation and a divergence in strategic objectives at the
time, none of those discussions continued.
On May 26, 1998, Trenwick and Chartwell executed confidentiality agreements
with each other. Chartwell provided Trenwick with a limited amount of non-public
information, but Chartwell and Trenwick never proceeded beyond preliminary
discussions at that time.
During the remainder of 1998 and the first several months of 1999,
Chartwell continued to discuss with third parties, including Trenwick, the
possibility of a business combination. In addition, Chartwell provided detailed
information regarding its operations to certain other interested parties. In
September 1998, Trenwick delivered to Goldman Sachs an oral preliminary
indication of interest and discussed with Chartwell potential transaction
structures. In early February 1999, Mr. Billett met with Steven J. Bensinger,
President of Chartwell, to discuss the possibility of a business combination
between their respective companies and the possible structure of the combined
entity. On February 22, 1999, Trenwick delivered to Goldman Sachs a written
preliminary indication of interest. Following receipt of that letter, Trenwick
and Chartwell agreed to continue discussions and for Trenwick to visit
Chartwell's London operations for the purpose of conducting due diligence.
On February 26, 1999, Trenwick and DLJ entered into an engagement letter
regarding the terms of DLJ's engagement as financial advisor to Trenwick.
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<PAGE> 32
At the Trenwick board of directors' regularly scheduled first quarter
meeting held on March 3, 1999, Mr. Billett summarized the status of Trenwick's
consideration of a transaction with Chartwell. During the week of March 8, 1999,
Trenwick conducted due diligence of Chartwell's London operations.
Chartwell received oral and written preliminary indications of interest
from several other interested parties in March and April 1999 and during that
period entered into discussions regarding a possible strategic transaction with
one of those parties. These discussions were discontinued in April 1999 because
the parties could not agree on the terms of a transaction.
On April 13, 1999, Mr. Billett delivered a letter to Mr. Cole indicating
Trenwick's interest in effecting a transaction with Chartwell, subject to
satisfactory completion of its due diligence investigation of Chartwell.
At a special meeting of Trenwick's board of directors held on April 20,
1999, Mr. Billett discussed various opportunities which were then being explored
by management, including the potential transaction with Chartwell. In addition,
Trenwick's financial advisor, DLJ, presented its assessment of Trenwick's
competitive position and the current merger and acquisition environment. On the
same day, Mr. Billett delivered a second letter to Mr. Cole indicating
Trenwick's interest in a business combination with Chartwell. Trenwick
contemporaneously requested that Chartwell enter into an exclusive due diligence
period with Trenwick.
On April 20, 1999, Chartwell's board of directors met by telephone and
approved a two week exclusive due diligence period with Trenwick. During the two
week due diligence period, Trenwick and Chartwell conducted due diligence
investigations of each other's operations.
On May 5, 1999, Chartwell's board of directors met, reviewed Chartwell's
due diligence findings with respect to Trenwick up to that date, and agreed to
extend the due diligence exclusivity period for an additional two weeks.
At the regularly scheduled second quarter meeting of the Trenwick board of
directors held on May 19, 1999, Trenwick management advised the Trenwick board
of directors that additional due diligence investigation of Chartwell was
required and would continue notwithstanding the expiration of the exclusivity
period. Trenwick's due diligence efforts were completed shortly thereafter.
On May 20, 1999, at its regularly scheduled quarterly meeting, Chartwell's
board of directors further reviewed Chartwell's due diligence findings with
respect to Trenwick and the status of negotiations with Trenwick.
On May 27, 1999, Chartwell executed a second engagement letter with Goldman
Sachs appointing Goldman Sachs as its financial advisor.
From early June 1999 through the signing of the merger agreement and stock
option agreement on June 21, 1999, representatives of Trenwick and Chartwell
negotiated the terms of the merger agreement and the stock option agreement.
Throughout this period, Trenwick and Chartwell and their respective financial
advisors consulted with each other to determine an appropriate exchange ratio,
which was a product of arm's length negotiations between Trenwick and Chartwell.
On June 17, 1999, Chartwell's board of directors met via telephone to
review the status of the transaction, including the price discussions, the
results of further due diligence investigations conducted by Chartwell's
management and the terms of the merger agreement, the stock option agreement and
the proposed merger. On June 21, 1999, the board of directors of Chartwell met
and received a briefing from Chartwell's senior management, representatives of
Goldman Sachs and LeBoeuf, Lamb, Greene & MacRae, L.L.P., counsel to Chartwell,
on the status of the proposed merger. The Chartwell board of directors
considered the strategic benefits of the proposed merger, the opportunities it
presented for Chartwell and the potential value created for Chartwell's
stockholders. Strategic direction, specific provisions for management and
succession and future operating strategy were also discussed. The Chartwell
board of directors also considered alternative strategic transactions previously
considered by Chartwell, including the results of current and prior discussions
with other potential acquirers or merger
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partners. Goldman Sachs made a financial presentation and delivered its oral
opinion, which was subsequently confirmed in writing, to the effect that, based
upon and subject to the considerations set forth in such opinion, as of June 21,
1999, the exchange ratio was fair, from a financial point of view, to Chartwell
stockholders. LeBoeuf, Lamb, Greene & MacRae, L.L.P. reviewed for the Chartwell
board of directors its fiduciary obligations and the terms of the merger
agreement and the stock option agreement. Chartwell's management explained the
key terms of the proposed reinsurance agreement to be entered into as a
condition to the merger. After further discussion and deliberation, Chartwell's
board of directors unanimously declared advisable, authorized and approved the
merger agreement, the stock option agreement and the transactions contemplated
by each agreement and resolved to recommend to the Chartwell stockholders to
vote to adopt the merger agreement and approve the merger.
On June 21, 1999, Trenwick convened a special telephonic meeting of its
board of directors to consider the terms of the merger agreement, the stock
option agreement and the related transactions. Representatives of DLJ made a
financial presentation and delivered the firm's oral fairness opinion, which was
subsequently delivered in written form, to the effect that based upon and
subject to the considerations set forth in such opinion, as of June 21, 1999,
the exchange ratio was fair, from a financial point of view, to Trenwick.
Management reviewed the terms of the reinsurance agreement to be obtained by
Chartwell as a condition to the completion of the merger and discussed the key
elements of the planned integration of the companies. The directors present at
the meeting then unanimously approved the merger agreement, the option agreement
and the related transactions, and resolved to recommend to Trenwick's
stockholders that they do the same.
Chartwell and Trenwick signed the merger agreement and stock option
agreement on the evening of June 21, 1999 and issued a joint press release
announcing the merger on the morning of June 22, 1999.
TRENWICK REASONS FOR THE MERGER; RECOMMENDATION OF THE TRENWICK
BOARD OF DIRECTORS
The Trenwick board of directors has determined that the merger, the merger
agreement, the stock option agreement, the reinsurance agreement, and related
transactions are advisable, fair to and in the best interests of Trenwick and
its stockholders; and it has authorized and approved the merger, the merger
agreement, the stock option agreement and related transactions.
The factors considered by the Trenwick board of directors included, without
limitation:
- The merger will create a larger, more competitive company.
The combined company will be the second largest independent
reinsurer in the U.S., the sixth largest U.S. broker market
reinsurer and the 10th largest U.S. reinsurer overall, each
as measured by surplus.
- The combined company would have had assets in excess of $3
billion and shareholders' equity of $540 million as of June
30, 1999 and 1999 gross written premiums of approximately
$891 million.
- The combination of the companies will create scale and
produce efficiencies that are estimated to produce cost
savings of $15 million in 2000 and $25 million annually
thereafter.
- The larger capital base may present revenue enhancements
through the combined company's ability to offer larger
reinsurance limits and provide stronger security for
reinsurance brokers, cedents and insureds.
- The larger capital base is also expected to enhance capital
management flexibility.
- The competitive importance of market position, size and
adequacy of financial resources in the reinsurance industry.
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<PAGE> 34
- The merger provides Trenwick with an opportunity to expand
into primary insurance. In 1999 Chartwell expects to
underwrite $160 million of gross written premiums through its
two primary insurance subsidiaries. The primary insurance
subsidiaries have insurance licenses in 45 states and
authorizations to underwrite non-admitted business in 29
states with applications pending in 10 additional states.
- The combined company will have expanded and diversified
international operations. Chartwell's operations at Lloyd's,
which Chartwell expects will produce $160 million of gross
written premiums in 1999, provides a strong complement to
Trenwick International. In addition, Chartwell's Lloyd's
operations present geographic expansion synergies due to
their licensing and worldwide brand recognition.
- Trenwick management's expectations that the merger will
result in earnings accretion in 1999 and 2000 in excess of 5%
and 15%, respectively.
- The management teams of Trenwick and Chartwell have similar
cultures and complementary skills.
- The combination is consistent with one of Trenwick's
long-term business strategies of profitable premium growth
through geographic and product line diversification.
- As a condition to Trenwick's willingness to enter into the
merger agreement, Trenwick required, and Chartwell agreed,
that Trenwick be indemnified and guaranteed, effective upon
completion of the merger, against adverse reserve development
in Chartwell's business, including its operations at Lloyd's,
and that such indemnity and guarantee be accomplished through
a reinsurance agreement which is an express condition to the
completion of the merger.
- The due diligence review of Chartwell by Trenwick's
management.
- The business, operations, financial condition, earnings and
prospects of both Trenwick and Chartwell, as well as current
industry, economic and market conditions.
- The current and historical market prices of Trenwick common
stock and Chartwell common stock.
- The structure of the merger and the terms of the merger
agreement, including that:
- the exchange ratio is fixed and will not be increased or
decreased in the event that the price of Trenwick common
stock rises or falls at a greater rate than the price of
Chartwell common stock prior to the completion of the
merger;
- the merger is intended to qualify as a tax-free
reorganization under section 368(a) of the Internal
Revenue Code;
- the termination fee payable to Trenwick by Chartwell if
the merger is not completed under specific
circumstances; and
- the stock option agreement pursuant to which Chartwell
granted Trenwick an irrevocable option to purchase in
certain circumstances 1,918,729 shares of Chartwell
common stock (equal to approximately 19.9% of the
outstanding Chartwell common stock), at a per share
price of $23.82, equal to the imputed value of a share
of Chartwell common stock as of the date of the merger
agreement based upon Trenwick's stock price and the
exchange ratio.
See "The Merger Agreement -- General" and "-- Terms of the
Merger; Consideration to be Received in the Merger."
- The financial analyses and presentation of DLJ to the
Trenwick board of directors on June 21, 1999 as well as the
opinion of DLJ that, as of June 21, 1999, and subject to
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<PAGE> 35
the assumptions, limitations and qualifications set forth in
such opinion, the exchange ratio pursuant to the merger
agreement was fair from a financial point of view to
Trenwick. See "-- Opinion of Trenwick's Financial Advisor." A
copy of DLJ's written opinion, dated June 21, 1999, which
sets forth the assumptions made, matters considered and
limitations on the review undertaken in connection with its
opinion, is attached as Appendix C to this document.
The board of directors also weighted the factors listed above against the
risk that Trenwick or Chartwell may have unexpected difficulties integrating
their operations and realizing anticipated cost savings. See "Risk Factors."
The foregoing discussion of the information and factors which were given
weight by the Trenwick board of directors is not exhaustive, but includes all
material factors considered by the Trenwick board of directors. The Trenwick
board of directors did not find it practicable to, and did not, make specific
assessments of, quantify or otherwise assign relative weights to the foregoing
factors and individual directors may have given different weights to different
factors. The Trenwick board of directors determined that the merger and merger
agreement were advisable and authorized and approved the merger agreement and
the merger.
THE MEMBERS OF THE TRENWICK BOARD OF DIRECTORS PRESENT AT THE SPECIAL
MEETING OF THE BOARD OF DIRECTORS HELD ON JUNE 21, 1999, HAVE FOUND ADVISABLE,
AUTHORIZED AND APPROVED THE MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY
RECOMMEND THAT THE TRENWICK STOCKHOLDERS VOTE "FOR" THE ADOPTION OF THE MERGER
AGREEMENT, AND THE APPROVAL OF THE MERGER AND THE RELATED ISSUANCE OF TRENWICK
COMMON STOCK TO CHARTWELL STOCKHOLDERS IN COMPLETION OF THE MERGER.
CHARTWELL REASONS FOR THE MERGER; RECOMMENDATION OF THE CHARTWELL BOARD OF
DIRECTORS
In reaching its conclusion to find advisable, to authorize and to approve
the merger agreement and the merger and to recommend that Chartwell stockholders
vote "FOR" the adoption of the merger agreement and approval of the merger, the
Chartwell board of directors concluded that the merger was likely to increase
the value of shares of Chartwell common stock over what that value would have
been had Chartwell not agreed to the merger, and that the opportunities created
by the merger to increase such value more than offset the risks inherent in the
merger.
The Chartwell board of directors reached this conclusion after careful
consideration of, and based on, a number of factors including the material
factors described below:
Competitive Conditions.
- The Chartwell board of directors considered the current
industry, economic and market conditions, including in
particular the intensification of competition in the property
and casualty insurance and reinsurance business and the
resulting downward pressure on pricing, together with the
ongoing consolidation trend within the insurance and the
reinsurance business.
- The Chartwell board of directors considered the prospects of
Chartwell as a stand-alone company given the increased
dominance in the reinsurance business of large reinsurance
companies with significant scale and critical mass.
- The Chartwell board of directors considered the capital
required to maintain or improve margins in the property and
casualty reinsurance business generally, the growth prospects
for Chartwell and the difficulty faced by smaller
institutions in managing the operating risks inherent in the
property and casualty reinsurance business generally.
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Strategic Alternatives. The Chartwell board of directors considered the
extensive investigation of strategic alternatives by Chartwell, including
consideration of combination transactions between Chartwell and other companies,
Chartwell continuing as an independent property and casualty insurer and
reinsurer and sales of certain of its subsidiaries or lines of business.
Exchange Ratio, Transaction Structure and Merger Agreement.
- The Chartwell board of directors considered the exchange
ratio and the historical market prices for Chartwell and
Trenwick common stock. Specifically, the Chartwell board of
directors considered that the value of a share of Chartwell
common stock at the exchange ratio based on the closing price
of Trenwick shares on the NASDAQ on June 18, 1999, the last
trading day prior to the date of execution of the merger
agreement, was $23.41, which represented:
- A premium of 68.7% over the $13.88 per share closing
price of Chartwell common stock on the NYSE on June
18, 1999; and
- a premium of 44.8% over the $16.17 average per share
closing price of Chartwell common stock on the NYSE
for the ninety trading day period ending on and
including June 18, 1999.
- The Chartwell board of directors considered the fact that the
exchange ratio is fixed and will not be adjusted despite any
increases or decreases in the price of either Chartwell
common stock or Trenwick common stock.
- The Chartwell board of directors considered the form of the
merger consideration and the structure of the merger, which
permits Chartwell stockholders to receive, on a tax-free
basis except with respect to cash paid in lieu of fractional
shares, shares of Trenwick representing approximately 42.9%
of the total outstanding equity of Trenwick following the
merger, based on the number of shares of Chartwell common
stock outstanding as of June 18, 1999. Chartwell stockholders
can thereby retain a significant aggregate equity interest in
the combined enterprise and the related opportunity to share
in its future growth prospects.
- The Chartwell board of directors considered the termination
fee and expenses payable by Chartwell to Trenwick under
specific circumstances if the merger is not consummated and
the option granted by Chartwell to Trenwick to acquire 19.9%
of the outstanding shares of Chartwell common stock.
- The Chartwell board of directors considered that the merger
agreement permits Chartwell, under specific circumstances, to
furnish information to and participate in substantive
negotiations and discussions with third parties and to
terminate the merger agreement to enter into a definitive
agreement with a third party in connection with a superior
proposal upon the payment of a $6.5 million termination fee.
See "The Merger Agreement -- Covenants -- Agreement Not to
Solicit Other Offers" and "-- Termination."
Reinsurance Agreement. The Chartwell board of directors considered that,
as a condition to Trenwick's willingness to enter into the merger agreement,
Trenwick required, and Chartwell agreed, that Trenwick be indemnified and
guaranteed, effective upon completion of the merger, against adverse reserve
development in Chartwell's business, including its operations at Lloyd's, and
that such indemnity and guarantee be accomplished through a reinsurance
agreement which is an express condition to the completion of the merger. See
"Related Agreements and Transactions -- Reinsurance Agreement."
Synergistic Benefits Resulting from the Merger. The Chartwell board of
directors considered the strategic fit between Chartwell and Trenwick, including
the possibility for significant synergies and cost
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savings, while creating a significantly larger institution. These anticipated
savings, if realized, will be due in part to the elimination of duplicative
administrative, public company and capital management expenses.
Presentation and Opinion of Goldman Sachs. The Chartwell board of
directors considered the financial analyses and presentation of Goldman Sachs,
its financial advisor, and the opinion of Goldman Sachs described below that,
based upon and subject to the considerations set forth in such opinion, as of
June 21, 1999, the exchange ratio was fair, from a financial point of view, to
Chartwell stockholders. See "-- Opinion of Chartwell's Financial Advisor." A
copy of Goldman Sachs' written opinion, dated June 21, 1999, which sets forth
the assumptions made, matters considered and limitations on the review
undertaken is attached as Appendix D to this document.
Management of Trenwick. The Chartwell board of directors considered the
fact that four current directors of Chartwell, including Mr. Cole, will become
Trenwick directors upon consummation of the merger. See "-- Management and
Operations Following the Merger."
Tax and Accounting Treatment. The Chartwell board of directors considered
that the merger is expected to be treated as a tax-free "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code and accounted for as
a "purchase" for financial reporting and accounting purposes.
In addition to the reasons listed above, in reaching the determination that
the terms of the merger were fair to and in the best interests of Chartwell and
its stockholders, the Chartwell board of directors also considered a number of
additional factors, including:
- its knowledge and review of the financial condition, results
of operation, business and prospects of Chartwell and
Trenwick, as well as the results of Chartwell's due diligence
review of Trenwick;
- the management team of Trenwick;
- the impact of the merger on Chartwell's employees;
- the terms of the merger agreement;
- the relative dividend rates on Chartwell and Trenwick common
stock; and
- the current and historical trading multiples of other
comparable companies.
The Chartwell board of directors considered the following countervailing
considerations with respect to the merger:
- the risk that the benefits sought in the merger would not be
obtained;
- the risk that the merger would not be consummated;
- the possible negative effect of the public announcement of
the merger on sales, agent, broker, customer and supplier
relationships, operating results and ability to retain
employees, and the trading price of Chartwell and Trenwick
common stock;
- the potentially substantial management time and effort that
will be required to consummate the merger and integrate the
operations of Chartwell and Trenwick; and
- the possibility that the stock option agreement and certain
provisions of the merger agreement, including Chartwell's
obligation under specific circumstances to pay Trenwick a
termination fee of $6.5 million, might have the effect of
discouraging other persons potentially interested in merging
with or acquiring Chartwell.
In the judgment of the Chartwell board of directors, the potential benefits
of the merger outweighed these countervailing considerations.
The Chartwell board of directors also considered that members of
Chartwell's management and certain members of its board of directors have
interests in the merger that are different from, or in
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addition to, the interests of Chartwell stockholders generally. These interests
are discussed in detail under "-- Interests of Certain Persons in the Merger" on
page 45.
The foregoing discussion of the information and factors which were given
weight by the Chartwell board of directors is not exhaustive, but includes all
material factors considered by the Chartwell board of directors. The Chartwell
board of directors did not assign specific weights to the foregoing factors and
individual directors may have given different weights to different factors. The
Chartwell board of directors, however, determined that the merger and the merger
agreement were advisable and authorized and approved the merger agreement and
the merger.
THE CHARTWELL BOARD OF DIRECTORS HAS FOUND ADVISABLE, AUTHORIZED AND
APPROVED THE MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT
CHARTWELL STOCKHOLDERS VOTE "FOR" THE ADOPTION OF THE MERGER AGREEMENT AND
APPROVAL OF THE MERGER.
FORM OF THE MERGER
Subject to the terms and conditions of the merger agreement and in
accordance with the Delaware General Corporation Law, Chartwell will be merged
with and into Trenwick at the effective time of the merger. Trenwick will be the
surviving corporation in the merger and will continue its corporate existence
under Delaware law. Pursuant to the merger agreement, the Trenwick Restated
Certificate of Incorporation will continue to be the Certificate of
Incorporation of Trenwick and the Trenwick By-laws as in effect immediately
prior to the effective time of the merger will continue to be the By-laws of
Trenwick after the merger is completed.
MERGER CONSIDERATION
At the effective time of the merger, by virtue of the merger and without
any action on the part of any stockholder of either Chartwell or Trenwick, each
issued and outstanding share of Chartwell common stock (other than shares of
Chartwell common stock owned by Trenwick, Chartwell or their subsidiaries which
will be cancelled as described below) will be converted into the right to
receive 0.825 of a validly issued, fully paid and nonassessable share of
Trenwick common stock (except that cash will be paid in lieu of fractional
shares as described under "The Merger Agreement -- Fractional Shares").
Each "excluded share" -- that is, each share of Chartwell common stock
issued and outstanding immediately prior to the effective time of the merger
that is owned by Trenwick or any subsidiary of Trenwick or by Chartwell or any
subsidiary of Chartwell -- will automatically be cancelled and retired at the
effective time and will cease to exist, and no cash or other consideration will
be delivered or deliverable in exchange for those shares. As of the effective
time of the merger, all shares of Chartwell common stock will no longer be
outstanding, will automatically be cancelled and cease to exist and each holder
of shares of Chartwell common stock will cease to have any rights in respect of
those shares, except the right to receive the merger consideration described
above in accordance with the terms of the merger agreement.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES;
FRACTIONAL SHARES
The conversion of Chartwell common stock into the right to receive Trenwick
common stock will occur automatically at the effective time of the merger. As
soon as practicable after the effective time, First Chicago Trust Company, a
division of EquiServe, in its capacity as exchange agent, will send a
transmittal letter to each former holder of Chartwell common stock. The
transmittal letter will contain instructions with respect to obtaining shares of
Trenwick common stock in exchange for shares of Chartwell.
CHARTWELL STOCKHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE
ENCLOSED PROXY CARD.
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After the effective time of the merger, each certificate that previously
represented shares of Chartwell common stock will represent only the right to
receive the Trenwick common stock and the right to receive cash in lieu of
fractional shares of Trenwick common stock as described below.
Until the holders of certificates previously representing Chartwell common
stock surrender those certificates to the exchange agent for exchange, they will
not be paid dividends or distributions on the Trenwick common stock into which
their Chartwell common stock has been converted if the record date for the
dividend or distribution is after the effective time of the merger (as described
in "The Merger Agreement -- Effective Time of the Merger"), and they will not be
paid cash in lieu of fractional shares of Trenwick common stock. When such
certificates are surrendered, any unpaid dividends and any cash in lieu of
fractional shares of Trenwick common stock payable as described below will be
paid without interest.
If Chartwell common stock has been transferred without registration of
transfer in the records of Chartwell's transfer agent, so that the person who
surrenders the certificate representing those shares to the exchange agent is
not the registered owner of the certificate, that person can still receive
shares of Trenwick common stock (plus cash in lieu of fractional shares and any
dividends or distributions with a record date after the effective time of the
merger) upon exchange of the certificate. However, the certificate must be
properly endorsed or otherwise in proper form for transfer, and the person
requesting the issuance of Trenwick common stock must either pay any transfer
tax that is due or establish to the satisfaction of Trenwick that such tax has
been paid or is not applicable.
When shares of Trenwick common stock are issued upon surrender of
certificates representing shares of Chartwell common stock (including any cash
paid in lieu of any fractional shares of Trenwick common stock), all rights
pertaining to the shares of Chartwell common stock that are surrendered will be
deemed to have been fully satisfied by the issuance of the shares of Trenwick
common stock (and cash in lieu of fractional shares). However, if Chartwell
declares any dividends or other distributions on those shares of Chartwell
common stock, and the dividends or distributions have not been paid before the
effective time of the merger, Trenwick will be obligated to pay such dividends
or other distributions.
No certificate or scrip representing fractional shares of Trenwick common
stock will be issued upon the surrender for exchange of certificates that
represented shares of Chartwell common stock immediately prior to the effective
time. Such fractional share interests in Trenwick common stock will not entitle
their owner to vote or to any rights as a stockholder of Trenwick. Chartwell
stockholders who would otherwise receive fractional shares of Trenwick stock
will receive cash in lieu of fractional shares. See "The Merger
Agreement -- Fractional Shares."
EFFECTIVE TIME OF THE MERGER
The effective time of the merger will be the time on the date of the
closing of the merger (or on any later date that Trenwick and Chartwell agree to
in writing) when Trenwick and Chartwell file a certificate of merger with the
Delaware Secretary of State. However, if the certificate of merger specifies a
later time as the effective time of the merger, the effective time will be that
later time.
STOCK EXCHANGE LISTINGS
Trenwick will apply to list the shares of common stock to be issued in
connection with the merger on NASDAQ.
Following the merger, holders of Trenwick common stock will be able to
trade shares of Trenwick common stock on NASDAQ. Chartwell stockholders,
however, will no longer be able to trade Chartwell common stock on any exchange
because Chartwell common stock will no longer be listed on any exchange.
Trenwick intends to apply to list the Trenwick common stock on the NYSE as soon
as practicable after the merger.
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<PAGE> 40
OPINION OF TRENWICK'S FINANCIAL ADVISOR
Trenwick requested DLJ, in its role as financial advisor to Trenwick, to
render an opinion to the Trenwick board of directors as to the fairness from a
financial point of view to Trenwick of the exchange ratio provided in the merger
agreement. DLJ delivered its oral opinion on June 21, 1999, which was
subsequently confirmed in writing, to the Trenwick board of directors that, as
of such date, and based on and subject to the assumptions, limitations and
qualifications set forth in such opinion, the exchange ratio was fair from a
financial point of view to Trenwick.
THE FULL TEXT OF THE DLJ OPINION IS ATTACHED TO THIS DOCUMENT AS APPENDIX
C. THE SUMMARY OF THE OPINION SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. TRENWICK STOCKHOLDERS ARE
URGED TO READ THE ENTIRE DLJ OPINION CAREFULLY FOR THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, OTHER MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY DLJ IN
CONNECTION WITH ITS OPINION.
The DLJ opinion was prepared for the Trenwick board of directors and was
directed only to the fairness of the exchange ratio to Trenwick from a financial
point of view, as of the date of the opinion. The senior management teams of
Chartwell and Trenwick negotiated the exchange ratio. The DLJ opinion was
necessarily based on economic, market, financial and other conditions as they
existed on, and on the information made available to DLJ as of, the date of the
opinion. Although subsequent developments may affect the opinion, DLJ does not
have any obligation to update, revise or reaffirm the opinion. DLJ expressed no
opinion as to the prices at which Trenwick common stock would actually trade at
any time. The opinion does not address the relative merits of the merger and the
other business strategies considered by the Trenwick board of directors nor does
it address the Trenwick board of directors' decision to proceed with the merger.
The opinion does not constitute a recommendation to any Trenwick stockholder as
to how such stockholder should vote on the merger.
In arriving at its opinion, DLJ reviewed the draft merger agreement and
stock option agreement. DLJ also reviewed financial and other information that
was publicly available or furnished to DLJ by Trenwick and Chartwell, including
information provided during discussions with their respective managements.
Included in the information provided during discussions with the respective
managements were certain financial projections of Chartwell for the period
beginning January 1, 1999 and ending December 31, 2000 prepared by the
management of Chartwell, certain financial projections of Trenwick for the
period beginning January 1, 1999 and ending December 31, 2010 prepared by the
management of Trenwick and certain financial projections of Chartwell for the
period beginning January 1, 2001 and ending December 31, 2010 prepared by
management of Trenwick based in part on the financial forecasts prepared by the
management of Chartwell. DLJ also received estimates of operating synergies
expected to result from the merger from Trenwick and discussed such synergies
with Chartwell. In addition, DLJ:
- compared financial and securities data of Trenwick and Chartwell with
various other companies whose securities are traded in public
markets,
- reviewed the historical stock prices and trading volumes of Trenwick
common stock and Chartwell common stock,
- reviewed prices and premiums paid in certain other business
combinations, and
- conducted such other financial studies, analyses and investigations
as DLJ deemed appropriate for purposes of rendering the DLJ opinion.
Trenwick did not impose any restrictions or limitations upon DLJ with
respect to the investigations made or the procedures followed by DLJ in
rendering the DLJ opinion.
In rendering the DLJ opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
DLJ from public sources, that was provided to DLJ by Trenwick and Chartwell or
their respective representatives, or that was otherwise reviewed by DLJ. In
particular, DLJ relied upon the estimates of the operating synergies achievable
as a result of the merger provided by the management of Trenwick and discussed
with the management of Chartwell. With
30
<PAGE> 41
respect to the financial projections supplied to DLJ, DLJ assumed that they were
reasonably prepared on the basis reflecting the best currently available
estimates and judgments of the managements of Trenwick and Chartwell as to the
future operating and financial performance of Trenwick and Chartwell, as the
case may be. DLJ did not assume any responsibility for making and did not make
any independent evaluation of any assets or liabilities or any independent
verification of any of the information reviewed by DLJ. DLJ assumed that the
merger will qualify as a tax-free reorganization within the meaning of Section
368(a) of the Internal Revenue Code.
The following is a summary of the presentation made by DLJ to the Trenwick
board of directors at its June 21, 1999 meeting in connection with rendering the
DLJ opinion. Unless otherwise specified, synergies as referred to below are
expense savings resulting from the merger, as estimated by the management of
Trenwick and discussed with the management of Chartwell, and assume $15 million
of pre-tax annual synergies realized in 2000 and $25 million annually
thereafter.
Exchange Ratio Analysis Based on the Relative Contributions of Trenwick and
Chartwell. DLJ compared the exchange ratio for the merger to the range of
exchange ratios implied by the relative contributions of Trenwick and Chartwell
to the pro forma combined company. In this analysis, DLJ examined the relative
contributions of Trenwick and Chartwell to the pro forma combined entity based
on selected financial data, assuming no synergies but incorporating the
estimated $32.5 million after-tax impact of Chartwell's assumed purchase of the
transaction reinsurance agreement. The analysis was as of March 31, 1999 for
balance sheet items and for the twelve months ended March 31, 1999 for income
statement items. A summary of the relative contributions of Trenwick to the pro
forma combined company and the corresponding implied exchange ratios is as
follows:
- 46.7% of the pro forma total assets, implying an exchange
ratio of 1.252;
- 44.7% of the pro forma insurance reserves, implying an
exchange ratio of 1.358;
- 56.7% of the pro forma shareholders' equity, implying an
exchange ratio of 0.839;
- 56.4% of the pro forma shareholders' equity, excluding the
impact of unrealized investment gains or losses, implying an
exchange ratio of 0.847;
- 63.2% of the pro forma tangible shareholders' equity,
excluding the impact of unrealized investment gains or
losses, implying an exchange ratio of 0.639;
- 52.2% of the pro forma statutory capital as of December 31,
1998, implying an exchange ratio of 1.005;
- 53.6% of the pro forma net premiums written, implying an
exchange ratio of 0.950;
- 53.7% of the pro forma investment income, implying an
exchange ratio of 0.946;
- 53.8% of the pro forma 1998 operating income, implying an
exchange ratio of 0.943;
- 69.2% of the pro forma combined market capitalization
implying an exchange ratio of 0.489, based on June 18, 1999
market prices.
The analysis further compared the relative contribution by Trenwick to the
1999 and 2000 projected earnings of the pro forma combined company, based on the
respective managements' projections, of 51.0% and 54.6%, respectively, implying
exchange ratios of 1.054 and 0.913 respectively. The range of exchange ratios
resulting from the contribution analysis includes the exchange ratio for the
merger. Based on the exchange ratio for the merger, Trenwick's stock price as of
June 18, 1999, and the number of shares of Chartwell's common stock and options
outstanding as of June 18, 1999. Trenwick stockholders will own in the aggregate
57.1% of the common stock of the combined company.
Exchange Ratio Analysis Based on a Discounted Cash Flow Valuation. DLJ
compared the exchange ratio for the merger to the range of exchange ratios
implied by comparing the estimated value per share of Trenwick with the
estimated value per share of Chartwell based upon a discounted cash flow "DCF"
valuation analysis. For purposes of this analysis, DLJ assumed that both
Trenwick and Chartwell paid the
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<PAGE> 42
maximum allowable dividends to its stockholders over the course of a ten-year
period. The dividends Trenwick and Chartwell were assumed to pay in each year
were equal to the lesser of the allowable maximum dividends payable for such
year based on insurance statutory regulations and an acceptable maximum leverage
ratio of net premiums written for the year equal to no more than 1.5 times
statutory capital and surplus. A terminal value was estimated at the end of year
ten based on a range of forward earnings multiples of 9.0x to 11.0x and book
value multiples of 0.90x to 1.10x and the respective company's estimated 2010
earnings and December 31, 2009 book value. The resulting cash flows were
discounted using a range of discount rates equal to the respective company's
estimated weighted average cost of capital of 9.3% to 11.3% for Chartwell and
8.3% to 10.3% for Trenwick. Chartwell's resulting valuation was reduced by the
estimated cost of the transaction reinsurance agreement of $32.5 million. The
analysis resulted in a range of implied exchange ratios of 0.545 to 0.800
excluding synergies and 1.048 to 1.231 including synergies, as compared to the
exchange ratio in the merger of 0.825.
Exchange Ratio Analysis Based on the Historical Stock Trading Relationship
of Trenwick and Chartwell. DLJ compared the exchange ratio for the merger to
the range of implied exchange ratios resulting from Trenwick's and Chartwell's
historical stock trading prices. DLJ examined the history of the trading prices
and their relative relationships or exchange ratios for both Trenwick and
Chartwell for the twelve months ended June 18, 1999 and for the approximate
two-year period of November 14, 1996 through December 11, 1998. The relative
relationships of Trenwick and Chartwell stock prices during the first period
examined resulted in a range of implied exchange ratios of 0.478 to 1.000, with
an average exchange ratio of 0.739, while the relative common stock
relationships during the second period examined resulted in a range of implied
exchange ratios equal to 0.737 to 1.020, with an average exchange ratio of
0.849. Both periods examined resulted in a range of implied exchange ratios that
includes the exchange ratio for the merger.
In addition, DLJ examined the historical trading price relationship of
Trenwick common stock and Chartwell common stock over several other periods and
calculated the implied exchange ratio for each period. DLJ also compared this
implied exchange ratio with the exchange ratio for the merger and calculated the
implied premium or discount. The following is a summary of this analysis:
<TABLE>
<CAPTION>
MERGER EXCHANGE RATIO
PERIOD IMPLIED AVERAGE PREMIUM TO IMPLIED
(AVERAGE TRADING DAYS) EXCHANGE RATIOS EXCHANGE RATIO
---------------------- --------------- ---------------------
<S> <C> <C>
6/18/99.............................................. 0.498x 68.7%
10 days............................................. 0.488x 69.0%
20 days............................................. 0.507x 62.8%
30 days............................................. 0.519x 58.9%
60 days............................................. 0.557x 48.1%
90 days............................................. 0.614x 34.3%
125 days............................................. 0.645x 28.0%
250 days............................................. 0.739x 11.6%
500 days............................................. 0.809x 2.0%
750 days............................................. 0.802x 2.9%
</TABLE>
Finally, based on Trenwick's stock closing prices for the past twelve
months ending June 18, 1999 and the exchange ratio for the merger of 0.825x, DLJ
calculated an implied average effective merger price of $26.33, as compared to a
merger price of $23.41 based on the exchange ratio for the Merger and the stock
prices of the Trenwick common stock and Chartwell common stock as of June 18,
1999.
Pro Forma Financial Analysis. DLJ analyzed the pro forma financial effects
resulting from the merger. In conducting its analysis, DLJ relied upon financial
projections provided by the managements of Trenwick and Chartwell. DLJ analyzed
the pro forma effect of the merger on earnings per share, stockholders' equity
per share, dividend per share and ownership of the pro forma combined company.
Trenwick's management has indicated that it believes that the merger will offer
consolidation opportunities which will result in the synergies described above.
DLJ incorporated estimates of such synergies provided
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<PAGE> 43
by the management of Trenwick in its analysis, although DLJ did not express any
opinion as to the likelihood of such synergies being realized. The results of
the pro forma merger analysis are not necessarily indicative of future operating
results or financial position. DLJ compared the projected earnings per share,
book value per share and dividend per share of Trenwick and Chartwell on a
stand-alone basis to Trenwick and Chartwell stockholders' projected pro forma
earnings per share, book value per share and dividend yield of the pro forma
combined company. The analysis estimates that earnings per share to each
Trenwick shareholder is 5.3%, 21.6% and 29.4% accretive in pro forma 1999, 2000
and 2001, respectively, while the earnings per share to each Chartwell
shareholder is 4.4% dilutive, 1.7% and 12.0% accretive in pro forma 1999, 2000
and 2001. The analysis also estimates that the book value per share to each
Trenwick shareholder will be 4.7% dilutive as of September 30, 1999, while the
book value per share to each Chartwell stockholder will be 18.5% dilutive as of
September 30, 1999. On a pro forma basis, each Trenwick shareholder will receive
a dividend equal to approximately $1.04 per share.
The chart below summarizes the resulting ranges of implied exchange ratios
based on DLJ's analysis. For a detailed description of each of DLJ's analyses
see the discussion above.
EXCHANGE RATIO EVALUATION RESULTS
[EXCHANGE RATIO EVALUATION BAR CHART]
<TABLE>
<CAPTION>
<S> <C> <C>
RELATIVE|CONTRIBUTION|ANALYSIS 0.489 1.054
- ------------------------------ ----- -----
DCF|Valuation - No|Synergies 0.545 0.800
DCF|Valuation - With|Synergies 1.048 1.231
Historical|Stock Trading|Relationship|11/14/96-12/11/98 0.737 1.020
Historical Stock|Trading|Relationship|52 Weeks 0.478 1.000
</TABLE>
In addition to the primary analyses described above, and as an addendum to
its presentation to the Trenwick board of directors, DLJ provided the results of
the following two additional analyses:
Additional Analysis: Review of Comparable Company Trading Statistics. DLJ
reviewed trading statistics of the following companies, which DLJ believed to be
comparable:
- Terra Nova Holdings Ltd.
- Everest Reinsurance Holdings
- IPC Holdings Ltd.
- PartnerRe Ltd.
- Renaissance Re Holdings Ltd.
- Risk Capital Holdings Inc.
- PMA Capital Corporation
- LaSalle Re Holdings Ltd.
- PXRE Corp.
DLJ analyzed the valuation multiples of each of the comparable companies
listed above, using trading valuations as of June 18, 1999, measured as a
multiple of selected financial data, including (a) 1999 and 2000 estimated
earnings per share and (b) book value per share, including and excluding
unrealized gains and losses, both as of March 31, 1999. The 1999 and 2000
estimated earnings per share for the
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<PAGE> 44
comparable companies were based on First Call mean earnings per share estimates.
DLJ also analyzed the implied Chartwell transaction valuation multiples that
would be produced based on Chartwell's projected and actual balances, the
transaction exchange ratio and Trenwick's June 18, 1999 common stock price.
Based on this analysis, DLJ noted that the comparable companies' public market
trading valuation multiples (which are not completely comparable with merger
transaction valuation multiples) and the implied Chartwell transaction multiples
produced the following ranges:
<TABLE>
<CAPTION>
COMPARABLE
COMPANIES IMPLIED CHARTWELL
---------------- TRANSACTION
DESCRIPTION MEAN MEDIAN MULTIPLES
----------- ------ ------ -----------------
<S> <C> <C> <C>
1999 estimated earnings per share......................... 12.4x 11.0x 9.9x
2000 estimated earnings per share......................... 8.4 8.1 9.8
5/31/99 book value per share including unrealized gains
and losses.............................................. 0.94 0.95 0.91
3/31/99 book value per share excluding unrealized gains
and losses.............................................. 0.98 0.95 0.93
</TABLE>
DLJ noted that the implied transaction multiples for Chartwell, in most
instances, were consistent with the median and mean multiples calculated for the
comparable companies.
Additional Analysis: Review of Precedent Transactions. DLJ reviewed the
trading statistics of 26 selected acquisitions of property-casualty insurance
companies that have occurred since January 1, 1996 and which DLJ believed were
comparable to the Trenwick/Chartwell merger. DLJ analyzed the valuation
multiples produced by each of the acquisitions, measured as a multiple of
selected financial data, including (a) earnings per share for the period twelve
months prior to the transaction announcement date, (b) earnings per share for
the period twelve months after the transaction announcement date, and (c) book
value per share as of the transaction announcement date. DLJ also analyzed the
implied Chartwell transaction valuation multiples that would be produced based
on Chartwell's projected and actual balances, the transaction exchange ratio and
Trenwick's June 18, 1999 common stock price. Based on this analysis, DLJ noted
that the valuation multiples produced by the acquisitions and the implied
Chartwell transaction multiples produced the following ranges:
<TABLE>
<CAPTION>
PRECEDENT
TRANSACTIONS IMPLIED CHARTWELL
--------------- TRANSACTION
DESCRIPTION MEAN MEDIAN MULTIPLES
----------- ----- ------ -----------------
<S> <C> <C> <C>
Last twelve months earnings per share....................... 14.6x 13.0x 9.9x
Next twelve months earnings per share....................... 13.9 13.4 9.8
Book value per share........................................ 1.5 1.4 0.91
</TABLE>
DLJ noted that the implied transaction multiples for Chartwell, in most
instances, were below the median and mean multiples calculated by the precedent
transactions.
The summary set forth above is not intended to be a complete description of
the analyses performed by DLJ but describes, in summary form, the material
elements of the presentation made by DLJ to the Trenwick board of directors on
June 21, 1999 in connection with preparation of the DLJ opinion.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Each of the
analyses conducted by DLJ was carried out in order to provide a different
perspective on the transaction and to add to the total mix of information
available. DLJ did not form a conclusion as to whether any individual analysis,
considered in isolation, supported or failed to support an opinion as to the
fairness of the exchange ratio from a financial point of view. Rather, in
reaching its conclusion, DLJ considered the results of the analyses in light of
each other and ultimately reached its opinion based on the results of all
analyses taken as a whole. DLJ did not place particular reliance or weight on
any individual analysis, but instead concluded that its analyses, taken as a
whole, supported its determination. Accordingly, notwithstanding the separate
factors summarized above, DLJ has indicated to Trenwick that it believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all analyses and
factors, could create an incomplete view of the
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<PAGE> 45
evaluation process underlying its opinion. The analyses performed by DLJ are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, as they are based upon
numerous factors or events beyond the control of the parties or their respective
advisors, none of Chartwell, Trenwick, DLJ or any other person assumes
responsibility if future results are materially different from those forecasted.
Under the terms of an engagement agreement dated February 26, 1999 between
Trenwick and DLJ, Trenwick has paid DLJ a retainer fee of $150,000, a fairness
opinion fee of $750,000 and, upon completion of the merger, will pay an
additional amount of $3,000,000 less the fairness opinion fee. In addition,
Trenwick agreed to reimburse DLJ, upon request by DLJ from time to time, for all
out-of-pocket expenses, including the reasonable fees and expenses of counsel,
incurred by DLJ in connection with its engagement and to indemnify DLJ and
related persons against liabilities relating to or arising out of its
engagement, including liabilities under U.S. federal securities laws. DLJ and
Trenwick negotiated the terms of the fee arrangement, and the Trenwick board of
directors was aware of such arrangement, including the fact that a significant
portion of the aggregate fee payable to DLJ is contingent upon completion of the
merger. DLJ believes that the terms of this fee arrangement are customary in
transactions of this nature.
DLJ is an internationally recognized investment banking firm and, as part
of its investment banking business, DLJ is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. In the
ordinary course of its business, DLJ or its affiliates may at any time hold long
or short positions, and may trade or otherwise effect transactions, for its own
account or for the accounts of customers, in equity or debt securities of
Trenwick or Chartwell. DLJ has performed investment banking and other services
for Trenwick in the past and has received usual and customary compensation for
its services. DLJ was selected by the Trenwick board of directors to act as
Trenwick's financial advisor for this merger on the basis of DLJ's experience
and expertise relating to the reinsurance industry.
OPINION OF CHARTWELL'S FINANCIAL ADVISOR
On June 21, 1999, Goldman Sachs delivered its oral opinion to the board of
directors of Chartwell that, as of the date of its opinion, the exchange ratio
pursuant to the merger agreement was fair from a financial point of view to
Chartwell's stockholders. Goldman Sachs subsequently confirmed its opinion in
writing.
WE HAVE ATTACHED AS APPENDIX D TO THIS DOCUMENT AND INCORPORATE HEREIN BY
REFERENCE THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED JUNE 21,
1999. THIS OPINION SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION. WE
ENCOURAGE CHARTWELL'S STOCKHOLDERS TO READ THIS OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things:
- the merger agreement;
- Annual Reports to Shareholders and the Annual Reports on Form 10-K of
Chartwell and Trenwick for, respectively, the three and five year periods
ended December 31, 1998;
- selected interim reports to stockholders and Quarterly Reports on Form
10-Q of Chartwell and Trenwick;
- Statutory Annual Statements filed by selected insurance subsidiaries of
Chartwell and Trenwick with the Insurance Departments of the states under
the laws of which they are respectively organized for the five years
ended December 31, 1998;
- selected other financial information, including Annual Report and
Accounts and Syndicate Quarterly Reports, of Lloyd's syndicates managed
by Chartwell;
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<PAGE> 46
- selected other communications from Chartwell and Trenwick to their
respective stockholders; and
- selected internal financial analyses and forecasts for Chartwell and
Trenwick prepared by their respective managements, including selected
cost savings and operating synergies projected by the managements of
Chartwell and Trenwick to result pursuant to the transactions
contemplated by the merger agreement.
Goldman Sachs also held discussions with the senior management of Chartwell
and Trenwick regarding the strategic rationale for, and potential benefits of,
the merger and the past and current business operations, financial condition and
future prospects of their respective companies. In addition, Goldman Sachs
reviewed the reported price and trading activity for the common stock of
Chartwell and Trenwick, compared selected financial and stock market information
for Chartwell and Trenwick with similar information for selected other companies
the securities of which are publicly traded, reviewed the financial terms of
selected recent business combinations in the reinsurance industry specifically
and in other industries generally and performed such other studies and analyses
as Goldman Sachs considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it, including the information
furnished by Chartwell relating to the loss and loss adjustment expense reserves
and related items, and has assumed such accuracy and completeness for purposes
of rendering Goldman Sachs' opinion. In that regard, Goldman Sachs assumed, with
Chartwell's consent, that the internal financial forecasts prepared by the
managements of Chartwell and Trenwick, including the synergies, had been
reasonably prepared on a basis reflecting the best currently available judgments
of their respective managements. Goldman Sachs is not an actuary and Goldman
Sachs' services did not include actuarial determinations or evaluations by
Goldman Sachs or an attempt to evaluate actuarial assumptions, including those
used in developing the loss and loss adjustment expense reserves. In addition,
Goldman Sachs has not made an independent evaluation or appraisal of the assets
and liabilities (including the loss and loss adjustment expense reserves) of
Chartwell or Trenwick or any of their respective subsidiaries and Goldman Sachs
was not furnished with any such evaluation or appraisal. In that regard, Goldman
Sachs expressed no opinion as to the adequacy of the loss and loss adjustment
expense reserves of Chartwell or Trenwick or any of their respective
subsidiaries. Goldman Sachs' advisory services and its opinion were provided for
the information and assistance of the board of directors of Chartwell in
connection with its consideration of the transaction contemplated by the merger
agreement and Goldman Sachs' opinion does not constitute a recommendation as to
how any holder of the common stock of Chartwell should vote with respect to such
transaction.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its opinion to Chartwell's board of
directors. The Selected Transactions Analysis, the Pro Forma Merger Analysis and
selected portions of the Contribution Analysis performed by Goldman Sachs were
analyzed including and excluding the effects of Chartwell's, or Chartwell's and
Trenwick's, aggregate excess of loss reinsurance treaties, as applicable. As a
condition to entering into the reinsurance agreement, which is an express
condition to the merger and is more fully described under "Related Agreements
and Transactions -- Reinsurance Agreement," Chartwell will be required to
commute specific stop loss agreements on or before the merger date.
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<PAGE> 47
Historical Stock Trading Analysis.
Goldman Sachs reviewed the historical trading prices and volumes for
Chartwell's common stock. In addition, Goldman Sachs analyzed the consideration
to be received by holders of Chartwell's common stock pursuant to the merger
agreement and using the closing price of Trenwick common stock on June 18, 1999,
as compared to the market price of Chartwell's common stock at specific dates.
The following table presents Goldman Sachs' calculations.
<TABLE>
<CAPTION>
TIME PERIOD PREMIUM (DISCOUNT)
- ----------- ------------------
<S> <C>
Market price as of June 18, 1999............................ 68.7%
1 month previous............................................ 44.1%
3 months previous........................................... 15.6%
52 week low................................................. 76.7%
52 week high................................................ (24.3)%
</TABLE>
Selected Companies Analysis.
In order to assess how the public market values shares of similar publicly
traded companies, Goldman Sachs reviewed and compared specific financial
information relating to Chartwell and Trenwick to corresponding financial
information, ratios and public market multiples for publicly traded companies
based in the U.S. and Bermuda. Goldman Sachs reviewed the following U.S.
companies: Transatlantic Holdings Inc., Everest Reinsurance Holdings Inc. and
Alleghany Corp. Goldman Sachs also reviewed the following Bermuda companies: XL
Capital Ltd. (pro forma for the acquisition of NAC Re Corporation), ACE Limited
(pro forma for the acquisition of CIGNA Corporation's property and casualty
insurance operations), PartnerRe Ltd., RenaissanceRe Holdings Ltd. and Terra
Nova Holdings Ltd. The selected companies were chosen because they are
publicly-traded companies with operations that for purposes of analysis may be
considered similar to Chartwell. Goldman Sachs calculated and compared various
financial multiples and ratios.
The multiples of Chartwell and Trenwick were calculated, as applicable,
using a price of $13.88 and $28.38 per share of Chartwell common stock and
Trenwick common stock, respectively, the closing price of the Chartwell common
stock and Trenwick common stock on the NYSE and NASDAQ, respectively, on June
18, 1999. The multiples and ratios for each of the companies were based upon the
most recent publicly available information and recently published research
estimates.
Goldman Sachs considered each company's stock price as of June 18, 1999, as
a percent of its 52-week high. Goldman Sachs then calculated the multiple of
each company's price to its 1998, 1999 (calendar year estimated) and 2000
(calendar year estimated) earnings. Earnings per share estimates were based upon
reports published by Institutional Brokers Estimate Service (commonly referred
to as IBES). The following table presents the ranges of these percentages and
multiples:
<TABLE>
<CAPTION>
RANGES FOR U.S. RANGES FOR BERMUDA
BASED COMPANIES BASED COMPANIES CHARTWELL TRENWICK
--------------- ------------------ --------- --------
<S> <C> <C> <C> <C>
Price as of June 18, 1999 as a percent
of 52-week high..................... 73 - 80% 69 - 78% 45% 71%
Multiple of Price to 1998 Earnings
(calendar year actual).............. 10.1x - 20.7x 6.9x - 13.2x 4.6x 8.2x
Multiple of Price to 1999 Earnings
(calendar year estimated)........... 9.2x - 13.6x 6.8x - 13.9x 5.3x 10.9x
Multiple of Price to 2000 Earnings
(calendar year estimated)........... 8.4x - 12.7x 6.6x - 11.4x 4.3x 10.5x
</TABLE>
Goldman Sachs then considered each company's 1999-2000 earnings growth rate
(based upon IBES estimates), 5-year IBES growth rate, and the multiple of 2000
price/earnings ratio to 5-year IBES growth rate. Finally, Goldman Sachs reviewed
each company's multiple of price to book value, 1999 estimated
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<PAGE> 48
return on equity, dividend yield and the ratio of debt to capital. The following
table presents the ranges of these growth rates, multiples, returns, yields and
ratios:
<TABLE>
<CAPTION>
RANGES FOR U.S. RANGES FOR BERMUDA
BASED COMPANIES BASED COMPANIES CHARTWELL TRENWICK
--------------- ------------------ --------- --------
<S> <C> <C> <C> <C>
1999-2000 IBES Growth Rate............ 7.8 - 9.0% 3.1 - 31.9% 21.7% 3.8%
5-year IBES Growth Rate............... 9.0 - 12.6% 4.0 - 12.5% 12.5% 6.0%
Multiple of 2000 Price/Earnings Ratio
to 5-year Growth Rate............... 0.7x - 1.3x 0.7x - 1.6x 0.3 x 1.8x
Multiple of Price to Book Value
(excluding Financial Accounting
Standard 115)....................... 1.1x - 1.7x 1.0x - 1.4x 0.5 x 0.9x
1999 (estimated) Return on Equity..... 9.0 - 13.7% 9.2 - 18.6% 10.1% 8.7%
Dividend Yield........................ 0.0 - 0.7% 0.9 - 3.8% 1.2% 3.7%
Ratio of Debt to Capital.............. 0.0 - 27.1% 8.3 - 47.0% 27.1% 25.7%
</TABLE>
Discounted Cash Flow Analysis.
Goldman Sachs performed a discounted cash flow analysis using Chartwell's
management projections. Goldman Sachs calculated a net present value of free
cash flows for the years 1999 through 2003 using discount rates ranging from 10%
to 15%. Goldman Sachs calculated Chartwell's terminal value in the year 2003
based on multiples ranging from 8x trailing 2003 earnings to 14x trailing 2003
earnings. These terminal values were then discounted to present value using
discount rates from 10% to 15%. Based upon these calculations, the implied per
share values ranged from $11.63 to $24.53.
Selected Transactions Analysis.
This analysis compares data with respect to thirty-four selected
transactions in the reinsurance industry since 1989 to the proposed merger.
Goldman Sachs analyzed various information relating to selected transactions in
the reinsurance industry. Goldman Sachs performed this analysis including the
effects of Chartwell's aggregate excess of loss reinsurance treaties and based
upon the closing prices of Trenwick common stock and Chartwell common stock on
June 18, 1999. The following is a summary of this analysis.
<TABLE>
<CAPTION>
RANGE FOR SELECTED TRENWICK/
TRANSACTIONS CHARTWELL
------------------ ---------
<S> <C> <C>
Equity Consideration (in millions).......................... $28.0 - $2,880.0 $226.7
Multiple of Net Income (latest twelve months)............... 1.89x - 25.37x 9.87x
Multiple of Tangible Book Value............................. .09x - 2.00x 1.00x
Multiple of Statutory Book Value............................ .66x - 2.46x 1.09x
</TABLE>
Goldman Sachs performed the same analysis not including the effects of
Chartwell's aggregate excess of loss reinsurance treaties (calculated assuming
commutation of such treaties at a one time after-tax cost of approximately $32.5
million). This analysis indicated equity consideration (in millions) of $226.7,
a multiple of net income (latest twelve months) of 14.5x (based upon 1998
operating income for Chartwell), a multiple of tangible book value of 1.17x and
a multiple of statutory book value of 1.22x.
Pro Forma Merger Analysis.
This analysis demonstrates the potential pro forma impact of the merger on
specific items of financial information for the combined company resulting from
the merger. Goldman Sachs prepared pro forma analyses of the financial impact of
the merger based upon the June 18, 1999 closing price per share of Trenwick
common stock of $28.38. Goldman Sachs first considered the potential pro forma
impact of the merger on the balance sheet (as of September 30, 1999) of the
combined entity resulting from the merger based upon Chartwell and Trenwick
projections and assuming an exchange ratio of 0.825 per share. Goldman Sachs
performed this analysis including the effects of Chartwell's and Trenwick's
aggregate
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<PAGE> 49
excess of loss reinsurance treaties. Goldman Sachs also assumed for purposes of
its analysis the purchase of a hypothetical reinsurance contract with a limit of
$100 million and a rate on line of 49.9% by Chartwell. The following table is a
summary of the material pro forma financial items that Goldman Sachs considered.
<TABLE>
<CAPTION>
FINANCIAL ITEM
--------------
<S> <C>
Book Value Per Share........................................ $30.39
Tangible Book Value Per Share............................... $28.21
Ratio of Total Debt to Capital.............................. 20.9%
Ratio of Total Debt plus Preferred to Capital............... 33.8%
Ratio of Adjusted Debt plus Preferred to Capital............ 20.9%
Dividends per Share......................................... $1.04
Percent of Pro Forma Increase in Dividend per Chartwell
Share..................................................... 436.3%
</TABLE>
Goldman Sachs performed the same analysis not including the effects of
Chartwell's and Trenwick's aggregate excess of loss reinsurance treaties
(calculated assuming commutation of such treaties at a combined one time
after-tax cost of approximately $85 million). Goldman Sachs also assumed for
purposes of its analysis the purchase of a hypothetical reinsurance contract
with a limit of $100 million and a rate on line of 49.9% by Chartwell. This
analysis indicated a book value per share of $27.57, a tangible book value per
share of $23.65, a ratio of total debt to capital of 22.3%, a ratio of total
debt plus preferred to capital of 36.0%, a ratio of adjusted debt plus preferred
to capital of 22.3%, dividends per share of $1.04 and a percent of pro forma
increase in dividend per Chartwell share of 436.3%.
Goldman Sachs then performed a pro forma sensitivity analysis to calculate
the potential percentage pro forma impact of the merger on various items of
financial information for both Chartwell and Trenwick based upon Trenwick stock
prices ranging from $25.88 per share to $30.88 per share, assuming earnings for
Chartwell as presented by Chartwell's management (both adjusted and unadjusted
by Trenwick's management). The following table is a summary of the potential
percentage pro forma effect of the merger on the financial information analyzed
based upon the various ranges including the effects of Chartwell's and
Trenwick's aggregate excess of loss reinsurance treaties.
<TABLE>
<CAPTION>
RANGES OF ACCRETION (DILUTION) RANGES OF ACCRETION (DILUTION)
BASED UPON CHARTWELL EARNINGS BASED UPON CHARTWELL EARNINGS
(ADJUSTED) (UNADJUSTED)
------------------------------ ------------------------------
<S> <C> <C>
Chartwell Earnings Per Share
2000.................................. 4.1 - 0.3% (8.6) - (11.6)%
2001.................................. 8.5 - 5.4% 1.1 - (1.7)%
Trenwick Earnings Per Share
2000.................................. 27.0 - 22.4% 40.8 - 36.2%
2001.................................. 40.9 - 36.9% 48.1 - 44.1%
Chartwell Book Value Per Share.......... (21.4) - (15.6)% (21.4) - (15.6)%
Trenwick Book Value Per Share........... (8.1) - (1.4)% (8.1) - (1.4)%
Chartwell Tangible Book Value Per
Share................................. (5.1) - (5.1)% (5.1) - (5.1)%
Trenwick Tangible Book Value Per
Share................................. (11.2) - (11.2)% (11.2) - (11.2)%
</TABLE>
Goldman Sachs performed the same analysis not including the effects of
Chartwell's and Trenwick's aggregate excess of loss reinsurance treaties
(calculated assuming commutation of such treaties at a combined one time
after-tax cost of approximately $85 million). This analysis indicated the
following ranges of accretion (dilution) assuming adjusted Chartwell earnings:
Chartwell earnings per share (2000) of 31.5-25.1%, Chartwell earnings per share
(2001) of 37.0-32.1%, Trenwick earnings per share (2000) of 8.5-3.1%, Trenwick
earnings per share (2001) of 23.0-18.7%, Chartwell book value per share of
(20.2)-(13.8)%, Trenwick book value per share of (1.7)-6.2%, Chartwell tangible
book value per share of (7.9)-(7.9)% and Trenwick tangible book value per share
of (11.8)-(11.8)%. This analysis further indicated the following ranges of
accretion (dilution) assuming unadjusted Chartwell earnings: Chartwell earnings
per
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<PAGE> 50
share (2000) of 4.0-(0.4)%, Chartwell earnings per share (2001) of 21.0-17.0%,
Trenwick earnings per share (2000) of 24.4-19.1%, Trenwick earnings per share
(2001) of 30.9-26.5%, Chartwell book value per share of (20.2)-(13.8%), Trenwick
book value per share of (1.7)-6.2%, Chartwell tangible book value per share of
(7.9)-(7.9)% and Trenwick tangible book value per share of (11.8)-(11.8)%.
Using the same assumptions, Goldman Sachs then considered, and the
following table presents, the potential pro forma effect of the merger on the
combined company's book value per share, tangible book value per share, and
earnings per share including the effects of Chartwell's and Trenwick's aggregate
excess of loss reinsurance treaties.
<TABLE>
<CAPTION>
RANGES BASED UPON CHARTWELL RANGES BASED UPON CHARTWELL
EARNINGS (ADJUSTED) EARNINGS (UNADJUSTED)
--------------------------- ---------------------------
<S> <C> <C>
Trenwick Pro Forma Book Value Per Share.... $29.32 - $31.47 $29.32 - $31.47
Trenwick Pro Forma Tangible Book Value Per
Share.................................... $28.21 - $28.21 $28.21 - $28.21
Trenwick Pro Forma 2000
(estimated) Earnings Per Share............. $2.97 - $2.86 $3.29 - $3.19
Trenwick Pro Forma 2001
(estimated) Earnings Per Share............. $3.82 - $3.71 $4.01 - $3.90
</TABLE>
Goldman Sachs performed the same analysis not including the effects of
Chartwell's and Trenwick's aggregate excess of loss reinsurance treaties
(calculating assuming commutation of such treaties at a combined one time
after-tax cost of approximately $85 million). This analysis indicated the
following ranges assuming adjusted Chartwell earnings: Trenwick pro forma book
value per share of $26.50-$28.65, Trenwick pro forma tangible book value per
share of $23.65-$23.65, Trenwick pro forma 2000 (estimated) earnings per share
of $2.19-$2.08 and Trenwick pro forma 2001 (estimated) earnings per share of
$3.02-$2.91. This analysis further indicated the following ranges assuming
unadjusted Chartwell earnings: Trenwick pro forma book value per share of
$26.50-$28.65, Trenwick pro forma tangible book value per share of
$23.65-$23.65, Trenwick pro forma 2000 (estimated) earnings per share of
$2.51-$2.40 and Trenwick pro forma 2001 (estimated) earnings per share of
$3.21-$3.10.
This analysis also indicated that Chartwell stockholders would receive 42%
of the outstanding common equity of the combined company after the merger.
Contribution Analysis.
This analysis demonstrates the parties' respective historical and projected
contributions, on a percentage basis, to selected financial information of the
combined company resulting from the merger prior to taking into account purchase
accounting adjustments relating to the merger and compares the implied exchange
ratios based upon these contributions to the exchange ratio in the merger.
Goldman Sachs reviewed specific historical and estimated future operating and
financial information. Goldman Sachs first considered assets, insurance reserves
and tangible equity (under two scenarios: (a) including the effects of
Chartwell's and Trenwick's aggregate excess of loss reinsurance treaties and (b)
not including the effects of Chartwell's and Trenwick's aggregate excess of loss
reinsurance treaties (calculated assuming commutation of such contracts at a
combined one time after-tax cost of approximately $85 million)). Goldman Sachs
then considered the net premiums written in the latest twelve months and the
1998 operating net income for each company. Goldman Sachs further considered the
adjusted and unadjusted management estimates of operating net income for 1999
and 2000, and market capitalization (as of June 18, 1999), in each case
calculated not including the effects of aggregate excess of loss
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<PAGE> 51
reinsurance treaties of Chartwell and Trenwick, respectively (calculated
assuming commutation of such contracts). The following table presents the
results of this analysis.
<TABLE>
<CAPTION>
CHARTWELL TRENWICK
--------- --------
<S> <C> <C>
Balance Sheet Items
Assets.................................................... 53.8% 46.2%
Insurance Reserves........................................ 55.3% 44.7%
Tangible Equity........................................... 40.5% 59.5%
Tangible Equity (adjusted for aggregate excess of loss
reinsurance treaties).................................. 42.1% 57.9%
Income Statement Items
Net Premiums Written (latest twelve months)............... 46.4% 53.6%
1998 Operating Net Income................................. 50.7% 49.3%
Management Estimates (no adjustments)
1999 (estimated) Operating Net Income..................... 21.2% 78.8%
2000 (estimated) Operating Net Income..................... 43.5% 56.5%
Management Estimates (adjustment to original Trenwick
earnings)
1999 (estimated) Operating Net Income..................... 23.6% 76.4%
2000 (estimated) Operating Net Income..................... 47.5% 52.5%
Management Estimates (adjustment to earnings of Chartwell
and Trenwick)
1999 (estimated) Operating Net Income..................... 14.3% 85.7%
2000 (estimated) Operating Net Income..................... 38.3% 61.7%
Market Capitalization (as of June 18, 1999)................. 30.3% 69.7%
</TABLE>
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all these analyses. No company or
transaction used in the above analyses as a comparison is identical to Chartwell
or Trenwick or the transaction contemplated by the merger agreement. The
analyses were prepared solely for purposes of Goldman Sachs' providing its
opinion to Chartwell's board of directors as to the fairness from a financial
point of view to Chartwell's stockholders of the exchange ratio pursuant to the
merger agreement and these analyses do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may be
sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, as they are based upon numerous factors or events beyond
the control of the parties or their respective advisors, none of Chartwell,
Trenwick, Goldman Sachs or any other person assumes responsibility if future
results are materially different from those forecasted. As described above,
Goldman Sachs' opinion to Chartwell's board of directors was one of many factors
taken into consideration by Chartwell's board of directors in making its
determination to approve the merger agreement. The foregoing summary does not
purport to be a complete description of the analysis performed by Goldman Sachs
and is qualified by reference to the written opinion of Goldman Sachs set forth
in Appendix D to this document.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Chartwell selected
Goldman Sachs as its financial advisor because it is a nationally recognized
investment banking firm that has substantial experience in transactions similar
to the merger. Goldman Sachs is familiar with Chartwell, having provided certain
investment banking services to Chartwell from time to time, including having
acted as co-managing underwriter for Chartwell's public offering of 3,638,655
shares of common stock in March 1996 and having acted as its financial advisor
in connection with, and having participated in certain of the negotiations
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<PAGE> 52
leading to, the merger agreement. Goldman Sachs has also provided investment
banking services from time to time to Trenwick, and may provide investment
banking services to Trenwick and its affiliates in the future. Goldman Sachs
provides a full range of financial advisory and securities services and, in the
course of its normal trading activities may from time to time effect
transactions and hold securities, including derivative securities, of Chartwell
or Trenwick or their affiliates for its own account and for the accounts of
customers.
Chartwell engaged Goldman Sachs to act as its financial advisor in
connection with the contemplated transaction. Pursuant to the terms of the
engagement letter executed May 27, 1999, Chartwell agreed to pay Goldman Sachs
in the case of a transaction involving the acquisition of 50% or more of
Chartwell's outstanding common stock a fee equal to 1.0% of the aggregate
consideration (as defined in the engagement letter) paid for the securities of
Chartwell on a fully diluted basis, up to a total consideration of an amount
equal to the number of outstanding Chartwell common stock multiplied by $31.00,
plus 2.5% of the aggregate consideration, if any, paid in excess of such amount.
Chartwell has further agreed to reimburse Goldman Sachs for its reasonable
out-of-pocket expenses, including attorneys' fees and disbursements, and to
indemnify Goldman Sachs against specified liabilities, including liabilities
under the federal securities laws.
IMPORTANT FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary discusses the important federal income tax
consequences of the merger. The summary is based upon the Internal Revenue Code,
applicable Treasury regulations and administrative rulings and judicial
authority as of the date hereof. All of the foregoing are subject to change,
possibly with retroactive effect, and any such change could affect the
continuing validity of the discussion. The discussion assumes that holders of
shares of Chartwell common stock hold such shares as capital assets. Further,
the discussion does not address the tax consequences that may be relevant to a
particular shareholder subject to special treatment under certain federal income
tax laws, such as dealers in securities, traders in securities that elect to use
a mark-to-market method of accounting, non-United States persons, tax-exempt
organizations, stockholders who acquired shares of Chartwell common stock
through the exercise of options, grants of performance shares under Chartwell's
equity-based compensation plans or otherwise as compensation or through a
tax-qualified retirement plan, or holders that hold Chartwell common stock as
part of a straddle or conversion transaction. This discussion does not address
any consequences arising under the laws of any state, locality or foreign
jurisdiction.
- General. It is intended that the merger constitute a
"reorganization" pursuant to Section 368(a) of the Internal Revenue Code.
The respective obligations of the parties to complete the merger are
conditioned on the receipt by Trenwick of an opinion of Baker & McKenzie,
and the receipt by Chartwell of an opinion of LeBoeuf, Lamb, Greene &
MacRae, L.L.P., each dated the closing date, and each to the effect that
the merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. See "The Merger Agreement -- Conditions of the Merger." Such opinions
will be based upon, among other things, representations of Trenwick,
Chartwell and/or officers and principal stockholders of Trenwick and
Chartwell customarily given in transactions of this type.
- Consequences to Trenwick and Trenwick's stockholders. Neither
Trenwick nor the Trenwick stockholders would recognize gain or loss as a
result of the merger.
- Consequences to Chartwell and Chartwell's stockholders. As a
"reorganization," the merger would have the following consequences for
Chartwell and the Chartwell stockholders: No gain or loss would be
recognized by Chartwell. No gain or loss would be recognized by a holder of
Chartwell common stock as a result of the surrender of shares of Chartwell
common stock in exchange for shares of Trenwick common stock pursuant to
the merger agreement, except as discussed below with respect to cash
received in lieu of fractional shares of Trenwick common stock. The
aggregate tax basis of the shares of Trenwick common stock received in the
merger (including any fractional shares of Trenwick common stock deemed
received as described below) would be the same as the aggregate
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<PAGE> 53
tax basis of the shares of Chartwell common stock surrendered in exchange
therefor. The holding period of the shares of Trenwick common stock
received (including any fractional shares of Trenwick common stock deemed
received as described below) would include the holding period of shares of
Chartwell common stock surrendered in exchange therefor.
If a holder of shares of Chartwell common stock receives cash in lieu of a
fractional share interest in Trenwick common stock in the merger, the fractional
share interest would be treated as having been distributed to the holder, and
such cash amount would be treated as having been received in redemption of the
fractional share interest. In general, the holder would recognize capital gain
or loss equal to the cash amount received for the fractional share of Trenwick
common stock reduced by the portion of the holder's tax basis in shares of
Chartwell common stock surrendered that is allocable to the fractional share
interest in Trenwick common stock. The capital gain or loss would be long-term
capital gain or loss if the holder's holding period in the fractional share
interest for federal income tax purposes is more than one year. Long-term
capital gain of a non-corporate U.S. holder is generally subject to a maximum
tax rate of 20%.
Payments of cash to Chartwell stockholders in lieu of a fractional share
interest in Trenwick common stock in connection with the merger may be subject
to "backup withholding" at a rate of 31%, unless the stockholder:
- provides a correct taxpayer identification number (which, for an
individual stockholder, is the stockholder's social security number) and
any other required information to the exchange agent, or
- is a corporation or comes within certain exempt categories and, when
required, demonstrates this fact,
and otherwise complies with applicable requirements of the backup withholding
rules. A Chartwell stockholder who does not provide a correct taxpayer
identification number may be subject to penalties imposed by the Internal
Revenue Service. Any amount paid as backup withholding does not constitute an
additional tax and will be creditable against the Chartwell stockholder's U.S.
federal income tax liability. Each Chartwell stockholder should consult with its
own tax advisor as to such stockholder's qualifications for exemption from
backup withholding and the procedure for obtaining such an exemption. CHARTWELL
STOCKHOLDERS MAY PREVENT BACKUP WITHHOLDING BY COMPLETING A SUBSTITUTE FORM W-9
AND SUBMITTING IT TO THE EXCHANGE AGENT WHEN THEY SUBMIT THEIR SHARE
CERTIFICATES IN CONNECTION WITH THE MERGER.
The preceding discussion does not purport to be a complete analysis or
discussion of all potential tax effects relevant to the merger. Thus, Chartwell
stockholders are urged to consult their own tax advisors as to the specific tax
consequences to them of the merger, including tax return reporting requirements,
the applicability and effect of federal, state, local, and other applicable tax
laws and the effect of any proposed changes in the tax laws.
ACCOUNTING TREATMENT
Trenwick intends to treat the merger as a "purchase" for accounting and
financial reporting purposes.
REQUIRED REGULATORY FILINGS AND APPROVALS
Antitrust. Under the Hart-Scott-Rodino Act, and related Federal Trade
Commission rules, the merger may not be completed until notifications have been
given and certain information has been furnished to the FTC and the Antitrust
Division of the Department of Justice and specified waiting period requirements
have been satisfied. Trenwick and Chartwell have filed the necessary
notification and report forms and have been advised by the FTC that the waiting
period requirements have been satisfied.
At any time before or after completion of the merger, the Antitrust
Division or the FTC or any state could take whatever action under the antitrust
laws it deems necessary or desirable in the public interest. Such action could
include seeking to enjoin the completion of the merger or seeking divestiture of
Chartwell Reinsurance Company or substantial assets of Trenwick or Chartwell by
Trenwick. Private parties may also seek to take legal action under the antitrust
laws under certain circumstances.
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<PAGE> 54
U.S. Insurance. Chartwell's United States reinsurance and insurance
subsidiaries are subject to the insurance statutes of the jurisdictions in which
they are domiciled and the jurisdictions in which they are licensed, including
the insurance holding company acts in those jurisdictions. These statutes
generally require prior approval for persons acquiring control of insurance
companies domiciled or commercially domiciled in the state, whether directly or
indirectly, through merger or acquisition or otherwise. Accordingly, in
connection with the merger, Trenwick has filed an application for approval of
acquisition of control of or merger with a domestic or commercially domiciled
insurer or a comparable application (commonly known as a "Form A") in Minnesota
(with respect to Chartwell Reinsurance Company), New York (with respect to The
Insurance Corporation of New York and ReCor Insurance Company Inc.), and North
Dakota (with respect to Dakota Specialty Insurance Company).
In addition to the Form A filings, Trenwick will submit any required
notifications or other filings to applicable state insurance departments in
other states in which Chartwell's insurance and reinsurance subsidiaries conduct
business. Approval of the merger is not required in these states, but the
insurance departments of these states could determine to take action to impose
conditions on the merger.
U.K. Financial Services Authority. As a United Kingdom-regulated insurance
company, Trenwick International must obtain the consent of the Financial
Services Authority in the United Kingdom before any changes may occur in its
directors, managers or controllers. Accordingly, Trenwick International has
notified the Financial Services Authority of the merger, detailing the changes
to be made, and the Financial Services Authority must indicate whether or not it
consents to the changes within the period of three months following that notice.
If that period elapses without the Financial Services Authority objecting,
consent is deemed to be given.
Lloyd's. Once the merger is completed, Trenwick will be the controller of
Chartwell Managing Agents, a Lloyd's regulated managing agency, several
Chartwell controlled Lloyd's corporate members and a Chartwell controlled
registered Lloyd's advisor. Prior written consent of Lloyd's is required for
Trenwick to become a controller of these entities. Trenwick has filed an
application with Lloyd's to become a controller of these entities. It takes
approximately six weeks from receipt of a completed application for a change of
control for Lloyd's to reach a formal decision regarding the change in control.
Other. In addition to the foregoing, Trenwick and Chartwell may be
required to obtain regulatory approvals, file notices, or make certain other
filings in other jurisdictions in which one or the other maintains an office,
conducts business or has customers. At the time of this filing, Trenwick and
Chartwell do not expect any such other approvals, notices or other filings to be
material in connection with the merger.
There can be no assurance that the required regulatory approvals described
above will be received or, if received, of the timing and the terms and
conditions thereof.
NASDAQ. Under the rules applicable to companies listed on NASDAQ, the
affirmative vote of a majority of the votes duly cast is required to approve a
transaction involving the issuance of shares in excess of 20% of a company's
outstanding shares. This requirement applies to the issuance of shares of
Trenwick common stock in completion of the merger, but will be satisfied if the
merger is approved by Trenwick's stockholders as described in "The Trenwick
Special Meeting -- Quorum; Vote Required."
ABSENCE OF APPRAISAL RIGHTS
Trenwick stockholders are not entitled to any dissenters' rights under the
Delaware corporation law as a result of the proposal to be voted upon at the
Trenwick special meeting. Chartwell stockholders are also not entitled to any
appraisal rights under the Delaware corporation law as a result of the proposal
to be voted upon at the Chartwell special meeting. See "Comparison of Rights of
Trenwick Stockholders and Chartwell Stockholders -- Appraisal Rights."
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<PAGE> 55
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Chartwell's management have interests in the merger that
are different from, or in addition to, their interests as Chartwell stockholders
generally, including potential change in control payments, employment
agreements, stock options and other benefit plans. See "The Merger -- Employment
and Severance Arrangements" and "-- Other Arrangements with Employees." The
Chartwell board of directors was aware of these interests and considered them,
among other matters, in authorizing and approving the merger agreement, the
merger and related transactions.
Once the merger is completed, Trenwick will increase the size of its board
of directors to enable its board of directors to appoint four individuals to be
designated by Chartwell to the Trenwick board of directors. Trenwick and
Chartwell expect that the four designees will be Richard E. Cole, Robert M.
DeMichele, Frank E. Grzelecki and John Sagan, each of whom currently is a
Chartwell director. Mr. Billett will continue to be the Chairman, President and
Chief Executive Officer of Trenwick upon completion of the merger and related
transactions. In addition, Steven J. Bensinger, the current President of
Chartwell, will become Executive Vice President of Trenwick following the
merger. The other executive officers of Trenwick upon completion of the merger
will be Trenwick's current executive officers and individual executive officers
of Chartwell appointed by the Trenwick board of directors upon completion of the
merger.
EXISTING BUSINESS RELATIONSHIPS BETWEEN TRENWICK AND CHARTWELL
Effective October 1, 1998, Trenwick America Re entered into a quota share
reinsurance arrangement with The Insurance Corporation of New York, a Chartwell
subsidiary, in connection with an automobile insurance program. Trenwick America
Re's estimated gross written premium with respect to the program, which
terminates on October 1, 1999, is $900,000, and the estimated net written
premium for the program is $594,000.
From time to time, Trenwick and Chartwell participate on the same
reinsurance treaties as part of syndicated placements made in the broker segment
of the reinsurance market. However, they do not consult with each other or act
in concert on such common participations.
RESTRICTIONS ON RESALES BY AFFILIATES
All shares of Trenwick common stock issued in the merger will be freely
transferable, except that persons who are deemed to be affiliates (as defined in
Rule 145 under the Securities Act) of Chartwell at the time of the Chartwell
special meeting may resell their Trenwick common stock only in transactions
permitted by the resale provisions of Rule 145 under the Securities Act (or Rule
144 in the case of such persons who become affiliates of Trenwick) or as
otherwise permitted under the Securities Act. Persons who may be deemed to be
affiliates of Chartwell or Trenwick generally include individuals or entities
that control, are controlled by, or are under common control with, such party
and may include certain officers and directors of such party as well as
principal stockholders of such party.
Under the merger agreement, prior to the completion of the merger,
Chartwell will deliver to Trenwick a list of names of those persons whom
Chartwell believes to be affiliates of Chartwell for purposes of Rule 145.
Chartwell shall use its commercially reasonable efforts to cause each affiliate
to execute and deliver to Trenwick on or prior to the completion of the merger a
written agreement, in a form satisfactory to Trenwick, that such person will not
offer or sell or otherwise dispose of any of the shares of Trenwick common stock
issued to such person pursuant to the merger in violation of the Securities Act
or related rules and regulations.
This document cannot be used in connection with resales of Trenwick common
stock received in the merger by any person who may be deemed to be an affiliate
of Chartwell or Trenwick under the Securities Act.
MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
Following the merger, Trenwick will succeed to the operations of Chartwell.
The Trenwick board of directors will consist of the members of the current
Trenwick board of directors, and four additional
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members designated by Chartwell. See "-- Interests of Certain Persons in the
Merger." Mr. Billett will continue to be the Chairman, President and Chief
Executive Officer of Trenwick and Mr. Bensinger will become Executive Vice
President of Trenwick. The executive officers of Trenwick will consist of
Trenwick's current executive officers and individual executive officers of
Chartwell appointed by the Trenwick board of directors. The Chartwell
stockholders will become stockholders of Trenwick, and their rights as
stockholders will be governed by Trenwick's Restated Certificate of
Incorporation and Trenwick's By-Laws and the laws of the State of Delaware. See
"Comparison of Rights of Trenwick Stockholders and Chartwell Stockholders."
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
EMPLOYMENT AGREEMENTS
Chartwell entered into an employment agreement with Mr. Bensinger on March
31, 1993 and employment agreements with Mr. Cole and Jacques Bonneau on December
8, 1993. Each of the employment agreements has been amended six times, with the
amendments extending the termination date of each agreement and revising some of
their terms. Under the employment agreements, Messrs. Cole, Bensinger and
Bonneau are entitled to certain benefits upon a change of control of Chartwell,
which will occur at the time that Chartwell stockholders approve the merger. If,
during the two year period following this change of control, Chartwell (or
Trenwick, as its successor) terminates the employment of any of Messrs. Cole,
Bensinger or Bonneau other than for cause or disability, Chartwell or Trenwick,
as the case may be, will be obligated to pay that employee:
- accrued and unpaid base salary and benefits to the date of
termination; plus
- a lump sum equal to three times his annual base salary; plus
- a lump sum equal to his highest annual bonus during the two fiscal
years immediately preceding the change of control or after the change
of control, but only to the extent payment of the bonus does not
subject him to an excise tax under Section 4999 of the Internal
Revenue Code; plus
- the cost of his continued participation in applicable health,
disability and life insurance plans for a period of two years
following the date of termination, payable over time or in a lump sum
at his election.
Chartwell or Trenwick, as the case may be, would also be obligated to make
the above payments in the event any of Messrs. Cole, Bensinger or Bonneau
terminated his employment with Chartwell (or Trenwick, as its successor) for
good reason during the two year period following a change of control.
Each employment agreement defines good reason as:
- a material and adverse change in the employee's status, authority,
duties or function or in the employee's individual ability to
participate in or receive benefits under any incentive compensation,
bonus, stock incentive or other employee benefit plan on the same
basis as employees generally;
- any reduction in the employee's base salary;
- any failure to be nominated or renominated to the board of directors
of Chartwell (or Trenwick, as its successor) or Chartwell Reinsurance
Company;
- the relocation of Chartwell's principal executive offices or the
employee's place of employment more than 60 miles from New York City;
- any termination of the employee's employment where proper notice is
not delivered to the employee; or
- a failure of any successor to Chartwell (such as Trenwick) to deliver
an assumption and agreement to perform the employment agreement prior
to the effectiveness of the succession.
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If any of Messrs. Cole, Bensinger or Bonneau is terminated due to a
disability or for cause, Trenwick would not be obligated to make the above
payments. Each employment agreement defines disability as the employee's absence
from work for a period of 12 consecutive months due to physical or mental
illness. Each employment agreement defines cause as:
- continued failure of the employee to substantially perform his duties
after demand for substantial performance has been delivered to the
employee; or
- willful misconduct by the employee which is materially injurious to
Chartwell or Trenwick, as the case may be.
In the event any payments to Messrs. Cole, Bensinger or Bonneau under their
respective employment agreements are subject to an excise tax under Section 4999
of the Internal Revenue Code, the employment agreements obligate Chartwell (or
Trenwick, as its successor) to reimburse the employee so that the employee will
retain an after-tax benefit as if the excise tax had not been incurred, except
for the bonus portion of the payments referred to above.
Each of Messrs. Cole, Bensinger and Bonneau is subject under the terms of
his employment agreement to a non-competition provision during the term of his
employment and for up to one year thereafter under certain circumstances and to
ongoing confidentiality obligations. Although there is no obligation to mitigate
severance benefits, certain amounts received from a new employer would reduce
Chartwell's or Trenwick's obligations under the employment agreements.
As of the date of this document, Messrs. Cole, Bensinger and Bonneau would
be entitled to severance payments of approximately $1,701,000, $1,346,000 and
$1,079,000, respectively, upon the termination of their employment without cause
or disability or for good reason following a change of control.
Mr. Bensinger is in the process of negotiating with Trenwick amendments to
his employment agreement. Trenwick expects that Messrs. Cole and Bonneau will
not continue as employees after completion of the merger and that they will be
entitled to receive the severance payments set forth in their employment
agreements. Mr. Cole will serve as a director of Trenwick after completion of
the Merger.
CHARTWELL SEVERANCE ARRANGEMENTS
Chartwell has entered into change of control severance agreements with its
executive vice presidents, senior vice presidents and vice presidents. Chartwell
entered into the change of control agreements to reinforce and encourage the
continued dedication and attention of its senior personnel to their assigned
duties without distractions arising from a potential change in control and to
retain senior personnel in the event of a potential change in control and
thereby protect Chartwell's assets. Under the change of control severance
agreements, a change of control of Chartwell will occur at the time that
Chartwell stockholders approve the merger.
In the change of control severance agreements, upon the termination of an
employee's employment by Chartwell (or Trenwick, as its successor) without cause
or disability or by the employee for good reason within two years after a change
of control, Chartwell or Trenwick, as the case may be, will be obligated to make
a lump sum payment to the employee equal to between one and two years' salary
and maintain certain employee benefits for one year. Each change of control
severance agreement defines cause as the employee's willful breach of duty in
the course of his or her employment or the employee's habitual neglect of his or
her employment duties, and defines disability as the employee's absence from his
or her duties for 365 consecutive days as a result of his or her physical or
mental illness. Each change of control severance agreement defines good reason
as:
- the assignment to the employee of any duties inconsistent with his or her
status as an officer or a substantial diminution in the nature or status
of his or her responsibilities from those in effect immediately prior to
the change of control;
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- any reduction in the employee's annual base salary as in effect on the
date of the change of control;
- the relocation of the office in which the employee is located prior to
the change of control to a location more than 60 miles from New York
City;
- a material and adverse change in the employee's individual ability to
participate in or receive benefits under any incentive compensation,
bonus, stock incentive or other employee benefit plan on the same basis
as employees generally;
- a failure of any successor to Chartwell (such as Trenwick) to deliver an
assumption and agreement to perform the employment agreement prior to the
effectiveness of the succession; or
- any termination of the employee's employment where proper notice is not
delivered to the employee.
In the event any payments to an employee under a change in control
severance agreement would be subject to an excise tax under Section 4999 of the
Internal Revenue Code, the payments would be reduced by an amount which would
result in no application of such excise tax. As of September 3, 1999, the
estimated aggregate severance payment to executive vice presidents, senior vice
presidents and vice presidents of Chartwell whose employment will be terminated
without cause or disability or for good reason following a change of control is
approximately $2,354,000.
TRENWICK MERGER SEVERANCE POLICY
Trenwick has adopted a merger severance policy for employees of Trenwick or
Chartwell whose employment is involuntarily terminated within one year after
completion of the merger or who resign within one year after completion of the
merger following a pay reduction. The policy does not apply to employees who are
party to employment agreements or change of control severance agreements as
described above. Employees will not receive payments under the policy if their
employment ends as a result of resignation (other than following a pay
reduction), disability leave or an approved leave of absence beginning prior to
the completion of the merger, or termination for cause.
Under the policy, eligible employees will receive two weeks' pay for each
year of service or two months' pay, whichever is greater. In addition, assistant
secretaries will receive an additional one month's pay, assistant vice
presidents will receive an additional two months' pay, vice presidents will
receive an additional three months' pay and senior vice presidents and officers
with titles above senior vice president will receive an additional four months'
pay. The policy also provides for outplacement counseling for officers at the
level of vice president or above and for assistance with health insurance costs.
OTHER ARRANGEMENTS WITH EMPLOYEES
STOCK OPTION PLANS, WARRANTS AND STOCK PURCHASE PLANS
As a result of the merger, each employee and director stock option to
purchase Chartwell common stock, whether or not then vested or exercisable,
shall be assumed by Trenwick and converted into an option to acquire, on the
same terms as were applicable under the Chartwell options prior to the merger,
0.825 of a share of Trenwick common stock for each share of Chartwell common
stock covered by the Chartwell option. The number of shares of Trenwick common
stock covered by the converted options will be rounded down to the nearest whole
number. The exercise price per share of the converted options will be adjusted
so that the exercise price per share will equal the exercise price per share of
Chartwell common stock under the Chartwell stock options divided by the exchange
ratio of 0.825 (rounded up to the nearest whole cent). Pursuant to the terms of
Chartwell's management stock option plans, following approval of the merger by
the Chartwell stockholders, each Chartwell management stock option will become
immediately exercisable in full. The Chartwell stock options will otherwise have
the same terms and conditions that were applicable to the Chartwell stock
options prior to the merger.
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At the completion of the merger, each outstanding warrant to purchase
Chartwell common stock shall be assumed by Trenwick in accordance with its
terms.
As a result of the merger, each outstanding option to purchase Chartwell
common stock under Chartwell's Sharesave Scheme 1997 (a stock purchase plan for
Chartwell's employees in the United Kingdom), whether or not then vested or
exercisable, will be converted into 0.825 of a share of Trenwick common stock
for each share of Chartwell common stock covered by the Chartwell option (with
cash paid in lieu of fractional shares), minus the number of shares of Trenwick
common stock whose value equals the amount of any United Kingdom tax that
Trenwick is required to withhold.
OTHER EMPLOYEE BENEFITS
Trenwick has agreed to cause those employees of Chartwell or its
subsidiaries who are employed as of the completion of the merger and who then
become employed by Trenwick to be provided with employee benefits (other than
severance benefits) no less favorable in the aggregate than those benefits
provided to other similarly situated employees of Trenwick and its subsidiaries.
To the extent permissible under the law, Trenwick will cause these employees to
receive full credit for service with Chartwell or its subsidiaries for purposes
of eligibility and vesting (but not benefit accrual). Such service also shall
apply for purposes of satisfying any waiting periods, evidence of insurability
requirements, or the application of any preexisting condition limitation.
INDEMNIFICATION AND INSURANCE
The merger agreement provides that Trenwick will indemnify the present and
former directors and officers of Chartwell and its subsidiaries to the same
extent provided under the Chartwell Restated Certificate of Incorporation and
the Chartwell Amended and Restated By-Laws (or the comparable documents of the
relevant Chartwell subsidiary, as applicable) against any liabilities or
expenses incurred in respect of acts or omissions occurring at or prior to the
effective time of the merger. For at least six years from the effective time,
Trenwick will maintain, for all former and current directors, officers or
employees of Chartwell and its subsidiaries, the current directors' and
officers' liability insurance, fiduciary liability insurance and indemnification
policies maintained by Chartwell and its subsidiaries to the extent that these
policies provide coverage for any matter existing, or any act or omission
occurring, on or before the effective time. However, Trenwick is not required to
maintain these policies if the annual premium for the policies would be more
than twice the last annual premium paid before the merger agreement was signed.
In lieu of maintaining these policies, Trenwick may, in certain circumstances,
provide coverage under the policies that it maintains for the benefit of its own
officers and directors, so long as the insurer has an A.M. Best rating of A or
better and the coverage is at least as favorable as the coverage provided under
the policies maintained by Chartwell and its subsidiaries. If the existing
policies maintained by Chartwell and its subsidiaries expire or are cancelled or
terminated before six years after the effective time of the merger, or if the
annual premium under those policies would be more than twice the last annual
premium paid before the merger agreement was signed, Trenwick will use its
reasonable efforts to buy, for the remainder of the six-year period, as much
coverage as it can buy for an annualized premium that is twice the last annual
premium paid before the merger agreement was signed.
PUBLIC TRADING MARKETS; DELISTING AND DEREGISTRATION OF CHARTWELL COMMON STOCK
Chartwell common stock is currently listed on the NYSE under the symbol
"CWL." Following consummation of the merger, Chartwell common stock will be
delisted from the NYSE and deregistered under the Exchange Act. Upon such
deregistration, Chartwell will no longer be required to make separate periodic
filings with the SEC under the Exchange Act. Trenwick common stock currently is
listed on NASDAQ under the symbol "TREN." Trenwick has applied to list the
shares of Trenwick common stock to be issued in the merger on NASDAQ and intends
to apply to list the Trenwick common stock on the NYSE as soon as practicable
after the merger.
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THE MERGER AGREEMENT
GENERAL
The merger agreement provides for the merger of Chartwell with and into
Trenwick, with Trenwick surviving the merger and continuing its corporate
existence under Delaware law. This section of the document describes important
provisions of the merger agreement. Because the description of the merger
agreement contained in this document is a summary, it does not contain all of
the information that may be important to you. You should read carefully the
entire copy of the merger agreement which is attached as Appendix A to this
document and incorporated herein by reference, before you decide how to vote.
CLOSING OF THE MERGER
Unless the parties agree otherwise, the closing of the merger will take
place at 10:00 a.m. on the second business day after the date on which all
closing conditions have been satisfied or waived. The closing of the merger will
take place at the offices of Baker & McKenzie, 805 Third Avenue, New York, New
York 10022, unless Trenwick and Chartwell agree in writing to another date, time
or place. The closing of the merger is expected to take place shortly after the
approval of the stockholders of Trenwick and Chartwell at the special meetings
and the receipt of all necessary insurance and other regulatory approvals.
EFFECTIVE TIME OF THE MERGER
At the closing of the merger, Trenwick and Chartwell will file a
certificate of merger with the Delaware Secretary of State. The merger will
become effective at the time the certificate of merger is duly filed with the
Secretary of State of the State of Delaware, unless Chartwell and Trenwick agree
in writing to have the certificate of merger specify a later time as the
effective time of the merger.
TRENWICK FOLLOWING THE MERGER
After the merger, Trenwick's Restated Certificate of Incorporation and
By-Laws as in effect immediately prior to the effective time of the merger will
continue to be the certificate of incorporation and by-laws of Trenwick. Once
the merger is completed, Trenwick will increase the size of its board of
directors to enable its board of directors to appoint four individuals to be
designated by Chartwell to the Trenwick board of directors. Trenwick and
Chartwell expect that the four designees will be Richard E. Cole, Robert M.
DeMichele, Frank E. Grzelecki and John Sagan, each of whom currently is a
Chartwell director. The executive officers of Trenwick upon completion of the
merger will be comprised of Trenwick's current executive officers and individual
executive officers of Chartwell appointed by the Trenwick board of directors.
TERMS OF THE MERGER; CONSIDERATION TO BE RECEIVED IN THE MERGER
Pursuant to the merger agreement, and on the terms and conditions set forth
therein, at the effective time of the merger, Chartwell will be merged with and
into Trenwick. Upon consummation of the merger, the separate corporate existence
of Chartwell will cease and Trenwick will be the surviving corporation in the
merger and will continue to be governed by the laws of Delaware. As a result of
the merger and without any action on the part of any stockholder of either
Chartwell or Trenwick:
- each issued and outstanding share of Chartwell common stock (other than
the shares owned by Trenwick, Chartwell or their subsidiaries) shall be
converted into the right to receive 0.825 of a share of Trenwick common
stock and the right, if any, to receive cash in lieu of any fractional
shares of Trenwick common stock and any distribution or dividend in
respect of Trenwick common stock with a record date which is at or after
the merger is completed, in each case without interest;
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- each share of Chartwell common stock owned by Trenwick, Chartwell or
their subsidiaries as treasury stock will be automatically cancelled and
retired and will cease to exist, and no securities of Trenwick or other
consideration will be delivered in exchange for those shares; and
- all shares of Chartwell common stock will no longer be outstanding, will
automatically be cancelled and retired and will cease to exist. Chartwell
stockholders will cease to have any rights with respect to those shares,
except the right to receive the merger consideration in accordance with
the terms of the merger agreement.
If any change occurs in the number of outstanding shares of common stock of
Trenwick or Chartwell before the effective time of merger as a result of a
reclassification, recapitalization, stock split, combination, exchange or
readjustment of shares, any stock dividend with a record date before the
effective time of merger or any similar transaction, the merger consideration
and the disposition of the options and warrants as provided in the merger
agreement will be appropriately adjusted.
No fractional shares of Trenwick common stock will be issued in the merger.
Instead, the merger agreement provides that each holder of Chartwell common
stock who would otherwise have been entitled to receive a fractional share of
Trenwick common stock will be entitled to receive cash in lieu thereof. See
"-- Fractional Shares."
All shares of Trenwick common stock to be issued pursuant to the merger
will be deemed issued and outstanding as of the effective time of the merger.
Once the merger is completed, the shares of Chartwell common stock that were
outstanding immediately prior to the effective time of the merger will no longer
be transferred on the stock transfer books of Chartwell.
EXCHANGE OF CERTIFICATES
Prior to the merger, Trenwick will enter into an agreement with First
Chicago Trust Company, a division of EquiServe, to effect the exchange of
certificates representing shares of Chartwell common stock for certificates
representing Trenwick common stock and cash to be paid in lieu of any fractional
shares. First Chicago acting in this capacity is called the "exchange agent" in
this document.
At the effective time of the merger, Trenwick will deposit certificates
representing Trenwick common stock in trust for the holders of Chartwell common
stock.
Promptly after the merger (but in no event more than five days thereafter),
the exchange agent will mail to each holder of a certificate of Chartwell common
stock a letter of transmittal and instructions explaining how to surrender the
certificate in exchange for shares of Trenwick common stock (and cash in lieu of
fractional shares of Trenwick common stock, if applicable). Chartwell
stockholders who surrender their stock certificates to the exchange agent,
together with a properly completed and signed letter of transmittal and any
other documents required by the instructions to the letter of transmittal, will
receive that number (rounded down to the nearest whole number) of validly
issued, fully paid and non-assessable shares of Trenwick common stock which is
equal to the exchange ratio multiplied by the number of shares of Chartwell
common stock surrendered, plus cash in lieu of fractional shares as described
below.
Chartwell stockholders who receive Trenwick common stock in the merger will
be entitled to dividends or other distributions declared on Trenwick common
stock with a record date after the effective time of the merger. However, no
such dividends or other distributions will be paid to the holder of a
certificate representing shares of Chartwell common stock until the holder of
the certificate has surrendered it for exchange. Upon surrender of the
certificates, those dividends or other distributions will be paid without any
interest.
If any Chartwell stockholder has lost his certificate representing
Chartwell common stock, or if the certificate has been stolen or destroyed, the
holder of the certificate can still obtain the shares of Trenwick common stock
(and any cash payable in lieu of fractional shares) to which he is entitled
(without interest) if he submits to the exchange agent an affidavit stating that
the certificate has been lost, stolen or destroyed. Trenwick may also require
any Chartwell stockholder whose certificate that has been lost, stolen
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or destroyed to post a bond in an amount that Trenwick may reasonably require to
indemnify Trenwick against claims that may be made against it with respect to
such lost certificate.
After 180 days have passed after the effective time of the merger, Trenwick
may require the exchange agent to return to Trenwick any portion of the
certificates representing shares of Trenwick common stock (and cash in lieu of
Trenwick common stock) to be issued in the merger that have not been distributed
to former Chartwell stockholders. Thereafter, former Chartwell stockholders who
have not surrendered their certificates for exchange for certificates
representing Trenwick common stock (and cash in lieu of fractional shares) must
look only to Trenwick for payment of their claims for any merger consideration
and any dividends or distributions with respect to Trenwick common stock.
FRACTIONAL SHARES
No certificates or scrip representing fractional shares of Trenwick common
stock will be issued upon the surrender for exchange of certificates that
represented shares of Chartwell common stock immediately prior to the effective
time of the merger, and such fractional share interests will not entitle their
owner to vote or to any rights of as a stockholder of Trenwick. Chartwell
stockholders who would otherwise receive fractional shares of Trenwick common
stock will receive cash instead of fractional shares, as described below.
As promptly as practicable after the effective time of the merger, the
exchange agent will determine the number of excess shares of Trenwick common
stock, by calculating:
- the number of shares of Trenwick common stock that were
deposited with the exchange agent in connection with the
merger, minus
- the number of whole shares of Trenwick common stock to be
distributed in connection with the merger.
The exchange agent will then sell all excess shares at the prevailing
market price. The proceeds of the sale of the excess shares will be used to pay
all commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the exchange agent, incurred in
connection with the sale of excess shares and to pay to former Chartwell
stockholders amounts due in respect of fractional shares.
Each Chartwell stockholder who would otherwise receive fractional shares of
Trenwick common stock will receive cash in the amount equal to his or her
proportionate share of the net proceeds of the sale of excess shares.
Each Chartwell stockholder's proportionate share of the net proceeds will
be:
- the fractional part of a share of Trenwick common stock held
by the stockholder, divided by
- the aggregate fractional shares of Trenwick common stock held
by all Chartwell stockholders.
No Chartwell stockholder will be entitled to receive cash in an amount
greater than the value of one full share of Trenwick common stock or interest on
any cash received in lieu of a fractional share of Trenwick common stock.
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CONDITIONS OF THE MERGER
MUTUAL CONDITIONS
The obligation of each of Chartwell and Trenwick to effect the merger is
subject to, among other things, the following conditions, unless any of these
conditions are waived by both companies on or before the effective time of the
merger:
- the Chartwell stockholders and the Trenwick stockholders must
adopt the merger agreement and approve the merger and related
transactions;
- the waiting period applicable to the consummation of the
merger under the Hart-Scott-Rodino Act must expire or
terminate;
- Trenwick and Chartwell must receive all approvals of any
governmental authority and Lloyd's, including insurance
regulatory approvals, required to consummate the merger,
except that such approvals may be subject to conditions
customarily imposed by insurance regulatory authorities or
Lloyd's and other conditions that are consistent with
Chartwell's and Trenwick's obligations to use commercially
reasonable efforts to complete the merger and the related
transactions;
- there must be no legal restriction which prohibits completion
of the merger, by any court, arbitrator, governmental or
regulatory authority, agency, commission, or a body of
competent jurisdiction;
- the registration statement on Form S-4 filed with the SEC to
register the Trenwick common stock to be issued in the
merger, of which this document is a part, must be declared
effective under the Securities Act and there must be no stop
order suspending the effectiveness of such registration
statement and no proceedings for that purpose initiated by
the SEC;
- the shares of Trenwick common stock to be issued in the
merger and the related transactions must be approved for
trading on NASDAQ; and
- Trenwick and Chartwell must receive all required consents and
waivers of third parties to the consummation of the merger,
other than those consents and waivers which, if not obtained,
do not have and are not likely to have, a material adverse
effect on Trenwick and its subsidiaries or on Chartwell and
its subsidiaries.
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF TRENWICK AND CHARTWELL
In addition, the obligations of Trenwick and Chartwell under the merger
agreement are subject to the further satisfaction or waiver by each party of the
following conditions:
- the representations and warranties of the other party set
forth in the merger agreement must be true and correct both
as of the date of the merger agreement and at and as of the
effective time of the merger, as if made at and as of such
time, (unless the representation or warranty is made as of an
earlier date, in which case it must be true as of that
earlier date), except where the failure of those
representations and warranties to be true and correct does
not have, and is not likely to have, either individually or
in the aggregate, a material adverse effect on the party
making the representation;
- the other party must have performed in all material respects
all obligations required to be performed by it under the
merger agreement at or prior to the closing date;
- the party must have received an opinion from its counsel,
dated the effective time of the merger, stating that the
merger will be treated as a reorganization under Section
368(a)(1) of the Internal Revenue Code;
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- the claims-paying or financial strength ratings of the other
party from A.M. Best & Co. or Standard & Poor's Corporation
must not be lowered or placed on credit watch with negative
implications (other than as a result of the announcement or
completion of the merger and the related transactions),
unless such action is reversed before the effective time of
the merger; and
- no material adverse change that relates to the other party
will have occurred; in the case of Trenwick's obligation to
complete the merger, this condition does not apply after the
Chartwell stockholders adopt the merger agreement and approve
the merger.
For purposes of the merger agreement, material adverse change or material
adverse effect means, with respect to either party to the merger agreement, any
change, effect, event, occurrence or state of facts that is, or will be,
materially adverse to the business, results of operations or financial condition
of that party and its subsidiaries taken as a whole, other than any change,
effect, event, occurrence or state of facts relating to:
- the United States or global economy or securities markets in
general;
- the merger agreement, the merger or related transactions or
the announcement thereof;
- any segment of the property and casualty insurance or
reinsurance industry in which such party participates in
general;
- any decrease in the value of portfolio investments resulting
from an increase in prevailing market interest rates; or
- any losses under insurance, reinsurance or retrocessional
agreements (other than where a subsidiary of Trenwick or
Chartwell is the cedent) in respect of any event that is
designated to be a catastrophe by the Property Claims
Services Division of the American Insurance Services Group,
Inc.
ADDITIONAL CONDITIONS TO THE OBLIGATION OF TRENWICK
As a condition to Trenwick's willingness to enter into the merger
agreement, Trenwick required, and Chartwell agreed, that Trenwick be indemnified
and guaranteed, effective upon completion of the merger, against adverse reserve
development in Chartwell's business, including its operations at Lloyd's, and
that such indemnity and guarantee be accomplished through a reinsurance
agreement which is an express condition to the completion of the merger.
Trenwick's obligation to complete the merger is also subject to the delivery to
Trenwick by counsel to Chartwell of an opinion to the effect that the merger
will not constitute a change of control under Chartwell's Contingent Interest
Notes due 2006.
REPRESENTATIONS AND WARRANTIES
MUTUAL REPRESENTATIONS AND WARRANTIES
The merger agreement contains mutual representations and warranties,
subject to qualifications, made by Chartwell to Trenwick and by Trenwick to
Chartwell, each relating to, among other things:
- the capitalization, organization, corporate power and similar
corporate matters of Chartwell, Trenwick and each of their
subsidiaries;
- authorization, execution, delivery, performance and
enforceability of the merger agreement and related matters;
- the timeliness and accuracy of all filings of financial
statements and documents filed with the SEC and the
applicable insurance regulatory authorities;
- the accuracy of information supplied for use in the
registration statement on Form S-4, of which this document is
a part;
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- the absence of material adverse changes;
- the absence of any declaration of dividends (other than
ordinary dividends on common stock) or distributions;
- the absence of any increases in salary or bonus, except in
the ordinary course of business or as required under any
existing employment agreement;
- the absence of any increase in severance or termination pay;
- the absence of any amendments of any employment or similar
agreements with any current or former director or officer;
- the absence of any tax election that would have a material
adverse effect;
- the absence of any change in accounting principles or
practices, unless required by a change in the applicable
accounting principles;
- employee benefit matters, including compliance of employee
benefit plans with applicable laws;
- certain tax matters, including lack of knowledge of any facts
or circumstances that are reasonably likely to prevent the
merger from qualifying as a "reorganization" under Section
368(a) of the Internal Revenue Code;
- the absence of conflicts under governing documents, required
consents, approvals and filings, and the absence of
violations of any agreements, licenses, permits or laws;
- compliance with applicable laws and receipt of all necessary
approvals and authorizations;
- the absence of litigation;
- the absence of undisclosed liabilities;
- the determination of reserves for claims, losses, and loss
adjustment expenses;
- compliance with insurance laws and regulations with respect
to insurance issued;
- the receipt of fairness opinions from their respective
financial advisers;
- stockholder voting requirements;
- the absence of undisclosed broker, investment banker or
financial advisor fees and expenses;
- the absence of default or violation of the restated
certificate of incorporation or by-laws of a party or
agreements of that party or its subsidiaries;
- the absence of undisclosed related party transactions;
- title to property and status of leases;
- environmental matters;
- private equity investment interests of the company and its
subsidiaries; and
- reinsurance contracts, coverholders and managing general
agents.
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF CHARTWELL
Chartwell has made additional representations relating to, among other
things: actions that have been taken regarding Chartwell's rights agreement and
Section 203 of the Delaware corporation law; and the representation that
Chartwell has obtained an underwriting commitment with respect to the
reinsurance agreement described in "Related Agreements and
Transactions -- Reinsurance Agreement."
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ADDITIONAL REPRESENTATIONS AND WARRANTIES OF TRENWICK
Trenwick has also made a representation and warranty relating to the
absence of knowledge on its part of any reason to believe that it and its
affiliates will not be able to obtain promptly any approvals from governmental
entities and Lloyd's that are necessary to complete the merger.
COVENANTS
OPERATIONAL COVENANTS OF TRENWICK AND CHARTWELL
Trenwick and Chartwell have each agreed as to itself and each of its
subsidiaries that, after the date of the merger agreement and prior to the
effective time of the merger (unless the other party shall otherwise approve in
writing and except as otherwise expressly contemplated by the merger agreement),
among other things:
- it will conduct its businesses in the ordinary course
substantially consistent with past practice and will use all
commercially reasonable efforts to preserve its business
organization intact and maintain its existing relationships
with agents, brokers, insureds, reinsureds and other business
associates;
- it will not amend its certificate of incorporation or
by-laws;
- it will not split, combine or reclassify its outstanding
shares of stock or declare or pay any dividends, other than
regular quarterly cash dividends;
- it will not issue, deliver, sell, grant, pledge, or otherwise
encumber any shares of its capital stock, any other voting
securities, or any securities convertible into, or any
rights, warrants or options to acquire, any such shares,
voting securities or convertible securities (other than
shares issuable upon exercise of options or warrants
outstanding on the date of the merger agreement, in
accordance with the party's rights agreement, or, in the case
of Chartwell, pursuant to the stock option agreement);
- it will not sell, lease, mortgage, transfer or encumber any
of its property or assets (other than dispositions of
investment assets in accordance with its investment
guidelines and dispositions of other assets up to $1 million
in the ordinary course of business);
- it will not acquire any other business organization or make
any material investment (other than acquisitions of
investment assets in the ordinary course of business pursuant
to its investment guidelines);
- it will not borrow money, except pursuant to existing credit
facilities in the ordinary course of business, and it will
not make any loans to or investments in any person, except to
its subsidiaries and as necessary to make permitted
acquisitions of investment assets;
- other than in the ordinary course of business, it will not
make any capital expenditure, and in no case will it make any
capital expenditure in excess of $1 million;
- it will not enter into, adopt, amend or terminate any benefit
plan or arrangement for the welfare or benefit of any
director, officer or employee; nor will it increase any
compensation or benefits of any director, officer or employee
(except for certain merit increases for non-officer
employees, subject to certain limits, and except as required
under existing agreements);
- it will not enter into any agreement that restricts the
operations of Trenwick after the merger;
- it will not settle or compromise any litigation or claim if
the settlement of such litigation or claim involves payment
of more than $100,000 (other than claims for
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contractual benefits under any insurance or reinsurance
contract under which it is the insurer or reinsurer);
- it will not take any action or fail to take any action which
action or omission would jeopardize the qualification of the
merger as a "reorganization" under Section 368(a)(1)(A) of
the Internal Revenue Code;
- it will not make any tax election or settle or compromise any
income tax liability that would have a material adverse
effect on it;
- it will not make any change in accounting principles or
practices materially affecting its assets, liabilities, or
business, except as required by a change in GAAP or statutory
accounting principles or applicable foreign accounting rules
or principles; and
- it will not commute any corporate aggregate excess of loss
reinsurance contracts or arrangements.
ADDITIONAL COVENANTS OF TRENWICK AND CHARTWELL
The merger agreement contains additional agreements relating to, among
other things:
- the preparation, filing and distribution of this document and
Trenwick's filing of the registration statement on Form S-4
of which this document is a part;
- mutual consultation with respect to press releases and other
public statements concerning the merger agreement, the merger
and related transactions;
- cooperation with respect to filings with governmental
authorities and other agencies and organizations;
- the delivery of "comfort letters" from each company's
independent accountants in connection with the filing of the
registration statement on Form S-4 of which this document is
a part; and
- cooperation in the defense of any litigation relating to the
merger agreement, the merger and related transactions.
ADDITIONAL COVENANTS OF CHARTWELL
In addition, with respect to certain syndicates of Lloyd's that are managed
by subsidiaries of Chartwell or through which subsidiaries of Chartwell
underwrite risks, Chartwell has agreed to cause the business of such syndicates
to be conducted as set forth in a business plan that was prepared by Chartwell
and not to sell or otherwise transfer any material portion of its interest in
any of such syndicates without prior written consent of Trenwick.
ADDITIONAL COVENANTS OF TRENWICK
Trenwick has made certain commitments with respect to employee and
severance benefits of Chartwell employees and with respect to indemnifying, and
maintaining directors' and officers' liability insurance for, current and former
directors of Chartwell and its subsidiaries. These commitments are described
under "The Merger -- Other Arrangements with Employees -- Other Employee
Benefits" and "-- Indemnification and Insurance."
AGREEMENT NOT TO SOLICIT OTHER OFFERS
The merger agreement provides that neither Chartwell nor any of its
subsidiaries will, nor will Chartwell authorize or permit any of its directors,
officers or employees or any investment banker, financial advisor, attorney,
accountant or other representative retained by it or any of its subsidiaries to
solicit, initiate, encourage (including by way of furnishing non-public
information), or take any other action
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designed to facilitate, or participate in any discussions or negotiations
regarding, any inquiries or the making of any proposal or offer with respect to
a "takeover proposal."
Under the merger agreement, "takeover proposal" means an inquiry, proposal
or offer relating to:
- any acquisition or purchase by a third party of a business
that constitutes 15% or more of the net revenues, net income
or assets of Chartwell and its subsidiaries, taken as a
whole;
- any acquisition or purchase by a third party of 15% or more
of any class of equity securities of Chartwell or any of its
subsidiaries;
- any tender offer or exchange offer that, if consummated, can
result in any person beneficially owning 15% or more of any
class of equity securities of Chartwell or any of its
subsidiaries; or
- any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar
transaction involving Chartwell or any of its significant
subsidiaries.
Notwithstanding the foregoing, if Chartwell receives, before the special
meeting of Chartwell stockholders, a "superior proposal" (as described
below) that was not solicited by Chartwell and did not otherwise result
from a breach of Chartwell's obligation not to solicit takeover proposals
and if, after consulting with counsel, the Chartwell board believes that it
is necessary to do so in order to comply with its fiduciary duties, then
Chartwell or its board of directors may:
- furnish information with respect to Chartwell and its
subsidiaries to any person making a superior proposal
pursuant to a customary confidentiality agreement; and
- participate in discussions or negotiations regarding such
superior proposal.
If Chartwell decides to take either of these actions with respect to a
superior proposal, Chartwell must first notify Trenwick in writing of its
decision. In addition, at all times and before taking any of the actions
described above, Chartwell must also notify Trenwick if it receives a
request for material non-public information or a takeover proposal, inform
Trenwick of the identity of any person making a takeover proposal and of
the material terms of the takeover proposal, and keep Trenwick informed of
the status and material details of any such request or proposal. Trenwick
will keep all such information confidential.
A "superior proposal" must meet the following criteria:
- the proposal is made by a third party to acquire, directly or
indirectly, more than 50% of the combined voting power of the
shares of Chartwell common stock then outstanding or all or
substantially all the assets of Chartwell including pursuant
to a tender offer, exchange offer, merger, consolidation,
business combination, recapitalization, liquidation,
dissolution or similar transaction;
- the proposal offers consideration consisting of cash and/or
securities;
- the proposal is otherwise on terms which the Chartwell board
of directors determines in its good faith judgment (based on
the advice of a financial advisor of nationally recognized
reputation) to be more favorable to Chartwell's stockholders
than the merger and the transactions contemplated by the
merger agreement; and
- if the proposal requires financing, such required financing
is then committed or, in the good faith judgment of the
Chartwell board of directors, is reasonably capable of being
obtained by the third party.
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In addition, except in the circumstances described below, neither the
Chartwell board of directors nor any committee of the Chartwell board of
directors may:
- withdraw or modify, or propose publicly to withdraw or
modify, in a manner adverse to Trenwick, the approval or
recommendation by the Chartwell board of directors of the
merger agreement and related transactions;
- approve or recommend, or propose publicly to approve or
recommend, any takeover proposal; or
- cause Chartwell to enter into any letter of intent, agreement
in principle, acquisition agreement or other similar
agreement related to any takeover proposal.
However, if the Chartwell board of directors is prepared to accept a
superior proposal, the Chartwell board of directors must forward written notice
to Trenwick specifying the material terms and conditions of the superior
proposal and identifying the person making the superior proposal. Trenwick will
keep all of the information in the written notice confidential. After the fifth
business day following Trenwick's receipt of the written notice, the board of
directors of Chartwell may terminate the merger agreement, upon payment of the
applicable termination fee, and if it chooses, cause Chartwell to enter into an
acquisition agreement with respect to any superior proposal, and withdraw its
approval and recommendation to Chartwell stockholders of the transactions
contemplated by the merger agreement.
None of Chartwell's obligations described above prohibits Chartwell from
taking and disclosing to the Chartwell stockholders a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure
to Chartwell stockholders if, in the good faith judgment of the board of
directors of Chartwell, after consultation with outside counsel, failure so to
disclose would be inconsistent with its obligations under applicable law.
TERMINATION
The merger agreement may be terminated at any time prior to the effective
time of the merger (whether before or after the Trenwick stockholders and the
Chartwell stockholders approve the merger agreement and the merger):
(a) by the mutual written consent of the board of directors of Trenwick
and the board of directors of Chartwell;
(b) by the written notice by either the board of directors of Trenwick
or the board of directors of Chartwell:
- if the merger has not become effective on or before December
31, 1999, unless the failure to complete the merger is the
result of the failure by the party seeking to terminate the
merger agreement to fulfill any of its obligations under the
merger agreement;
- if Trenwick fails to obtain the required approval of its
stockholders at the Trenwick stockholders meeting; or
- if any governmental entity has issued an order, decree or
ruling or taken any other action (which order, decree, ruling
or other action Trenwick and Chartwell shall use their
commercially reasonable efforts to lift) permanently
restraining, enjoining or otherwise prohibiting the
transactions contemplated by the merger agreement and such
order, decree, ruling or other action has become final and
nonappealable;
(c) by the board of directors of Chartwell:
- if Trenwick breaches or fails in any material respect to
perform or comply with any of its material covenants or
agreements, or if Trenwick breaches any of its representations
and warranties in any material respect and such breach would
have or would be
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reasonably likely to have a material adverse effect on Trenwick
and its subsidiaries, in each case such that the conditions to
Chartwell's obligation to complete the merger cannot be
satisfied; however, Chartwell may not terminate the merger
agreement if Trenwick can cure the breach through the exercise
of its best efforts and for so long as Trenwick uses its best
efforts to cure it;
- after Chartwell gives Trenwick five business days written
notice that it is prepared to accept a superior proposal as
permitted under the no-solicitation provision (see
"-- Covenants -- Agreement Not to Solicit Other Offers"), gives
Trenwick 48 hours advance notice of termination, and pays the
required termination fee. Chartwell will notify Trenwick
promptly if it is no longer prepared to accept the Chartwell
superior proposal referred to in its notification; or
- if Chartwell fails to obtain the required approval of its
stockholders at the Chartwell stockholders meeting and
Chartwell pays Trenwick any required termination fee (which
will be payable only if a third party has made a takeover
proposal with respect to Chartwell); and
(d) by the board of directors of Trenwick:
- if Chartwell breaches or fails in any material respect to
perform or comply with any of its material covenants or
agreements, or if Chartwell breaches any of its representations
and warranties in any material respect and such breach would
have or would be reasonably likely to have a material adverse
effect on Chartwell and its subsidiaries, in each case such
that the conditions to Trenwick's obligation to complete the
merger cannot be satisfied; however, Trenwick may not terminate
the merger agreement if Chartwell can cure the breach through
the exercise of its best efforts and for so long as Chartwell
uses its best efforts to cure it;
- if the board of directors of Chartwell withdraws or modifies or
changes its approval or recommendation of the merger agreement
or the merger in a manner adverse to Trenwick or approves or
recommends a takeover proposal, or if Chartwell enters into an
agreement in principle (or similar agreement) or definitive
agreement providing for a takeover proposal with a person or
entity other than Trenwick or any of its subsidiaries (or the
board of directors of Chartwell resolves to do any of the
foregoing); or
- if the stockholders of Chartwell do not approve the merger at
the Chartwell stockholders meeting.
Upon termination, the merger agreement shall become void and have no
effect, without any liability or obligation on the part of Trenwick or
Chartwell, other than the payment of fees and expenses as described in
"-- Expenses and Termination Fees" below, and the payment of the termination fee
(as described below), if required. Termination does not relieve any party from
liability for any willful and material breach of the representations,
warranties, covenants or agreements set forth in the merger agreement prior to
any such termination.
EXPENSES AND TERMINATION FEES
Trenwick and Chartwell will pay their own fees and expenses in connection
with the merger agreement, the stock option agreement and related transactions,
except that Trenwick and Chartwell shall each pay one-half of the costs and
expenses incurred in connection with the printing and mailing of this document
and certain regulatory filings. In addition, Chartwell will pay Trenwick a
termination fee in the amount of $6.5 million, in the event that:
- the Chartwell board of directors terminates the merger
agreement after giving 48 hours written notice to Trenwick of
such termination and five business days written notice that
the Chartwell board of directors is prepared to accept a
superior proposal;
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- the Trenwick board of directors terminates the merger
agreement after the Chartwell board of directors withdraws,
modifies or changes its approval or recommendation of the
merger agreement in a manner adverse to Trenwick or approves
or recommends a takeover proposal or Chartwell enters into an
agreement with a third party providing for a takeover
proposal;
- either party terminates the merger agreement if the Chartwell
stockholders do not approve the merger and a third party has
made a takeover proposal; or
- the Trenwick board of directors terminates the merger
agreement after Chartwell:
- breaches (and fails to cure such breach) any of
its material covenants and agreements in the
merger agreement, or
- breaches (and fails to cure such breach) its
representations and warranties in any material
respect and such breach would have or be
reasonably likely to have a material adverse
effect on Chartwell and its subsidiaries,
in each case such that the conditions to Trenwick's
obligation to complete the merger cannot be satisfied, and
within one year of such termination, Chartwell enters into a
definitive agreement with respect to a superior proposal. In
the event of such termination, Chartwell will pay to
Trenwick, on the date of termination, $2.0 million in respect
of liquidated damages, even if a definitive agreement with
respect to a superior proposal does not exist at the time of
termination. Such $2.0 million will be credited towards any
termination fee that becomes due to Trenwick from Chartwell.
AMENDMENT AND WAIVER
Subject to the provisions of applicable law, Trenwick and Chartwell can
agree in writing to amend, modify, or supplement any provision of the merger
agreement at any time prior to the effective time, whether before or after
approval of the merger by the Chartwell stockholders and the Trenwick
stockholders, except that, if the Trenwick stockholders or Chartwell
stockholders already have adopted the merger agreement and approved the merger,
Trenwick and Chartwell may not make any amendment that requires additional
approval by the stockholders unless they obtain such additional approval.
At any time prior to the effective time of the merger, either party may, in
writing: extend the time for performance of any of the obligations of the other
party; waive any inaccuracies in representations and warranties of the other
party; or waive compliance by the other party with any agreements or conditions
of the other party.
ACCESS TO INFORMATION
Each of Trenwick and Chartwell has agreed to provide, and to cause its
subsidiaries to provide, to the other party's officers, directors, employees,
counsel, accountants and other authorized representatives access during normal
business hours to its and its subsidiaries' property, books, contracts and
records throughout the period prior to the effective time of the merger. In
addition, during such period Trenwick and Chartwell will each furnish to the
other party all information as it may reasonably request.
RELATED AGREEMENTS AND TRANSACTIONS
REINSURANCE AGREEMENT
As a condition to Trenwick's willingness to enter into the merger
agreement, Trenwick required, and Chartwell agreed, that Trenwick be indemnified
and guaranteed, effective upon completion of the merger, against adverse reserve
development in Chartwell's business, including its operations at Lloyd's, and
that such indemnity and guarantee be accomplished through a reinsurance
agreement which is an express condition to the completion of the merger.
Accordingly, Chartwell has obtained a commitment from
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London Life and Casualty Corporation for an aggregate excess of loss reinsurance
agreement providing up to $100 million in coverage against unanticipated
increases in Chartwell's reserves for business written on or before the date the
merger is completed. Within the $100 million maximum, the protection is limited
to $100 million for increased reserves attributable to Chartwell's Lloyd's
operations, $25 million for increased reserves attributable to catastrophe and
Year 2000 losses and $50 million for increased reserves attributable to asbestos
and environmental coverage losses. The reinsurance agreement is a condition to
Trenwick's obligation to effect the merger and will take effect upon the
merger's completion. London Life's obligation to enter into the reinsurance
agreement is subject to certain conditions, including the commutation of certain
of Chartwell's excess of loss reinsurance treaties. The commitment provides that
the reinsurance agreement will not be cancellable by London Life and that London
Life's obligations will be secured by either a trust account or a letter of
credit. London Life is a Barbados company rated A (Excellent) by A.M. Best
Company. The premium payable for the reinsurance will be approximately $56
million.
STOCK OPTION AGREEMENT
As an inducement to Trenwick to enter into the merger agreement, Chartwell
granted Trenwick an irrevocable option to purchase 1,918,729 shares of Chartwell
common stock (equal to approximately 19.9% of the outstanding Chartwell common
stock) at a per share price of $23.82, equal to the imputed value of a share of
Chartwell common stock as of the date of the merger agreement based upon
Trenwick's stock price and the exchange ratio. Trenwick may exercise the stock
option, in whole or in part, at any time, or from time to time, after (but not
prior to) the occurrence of one of the trigger events (as defined below) until
the option terminates in accordance with the terms of the stock option
agreement. The following description of the stock option agreement does not
purport to be complete and is qualified in its entirety by reference to the
stock option agreement. You can find a copy of the stock option agreement
attached as Appendix B to this document.
If there is any change in the number of issued and outstanding shares of
Chartwell common stock as a result of any stock dividend, stock split, split-up,
recapitalization, reorganization or other change in the corporate or capital
structure of Chartwell, the number and/or kind of Chartwell shares that are
covered by the stock option and the purchase price per Chartwell share will be
appropriately adjusted to restore Trenwick to its rights, including its right to
purchase shares of Chartwell common stock representing 19.9% of the outstanding
Chartwell common stock.
A "trigger event" occurs when the merger agreement becomes terminable:
- by the Chartwell board of directors after giving 48 hours written
notice to Trenwick of a Chartwell takeover proposal;
- by the Trenwick board of directors after the Chartwell board of
directors withdraws, modifies or changes its approval or
recommendation of the merger agreement in a manner adverse to Trenwick
or approves or recommends a takeover proposal or Chartwell enters into
an agreement with a third party providing for a takeover proposal;
- by either party if the Chartwell stockholders do not approve the
merger and a third party has made a takeover proposal; or
- by the Trenwick board of directors after Chartwell:
-- breaches (and fails to cure such breach) any of its material
covenants and agreements in the merger agreement, or
-- breaches (and fails to cure such breach) any of its
representations and warranties and such breach would have or be
reasonably likely to have a material adverse effect on Chartwell
and its subsidiaries,
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in each case such that the conditions to Trenwick's obligation to
complete the merger cannot be satisfied, and within one year of such
termination, Chartwell enters into a definitive agreement with respect
to a superior proposal.
Pursuant to the stock option agreement, at any time the stock option is
exercisable, Trenwick may exercise the stock option, subject to satisfaction or
waiver of certain conditions specified in the stock option agreement, by
delivering to Chartwell a written "exercise notice" specifying the total number
of option shares it wishes to purchase. Unless Trenwick is in material breach of
the merger agreement or the stock option agreement, the stock option will be
exercisable until terminated. The option will terminate when the first of the
following occurs:
- the merger is completed;
- the merger agreement is terminated under conditions that would not
constitute a trigger event; or
- 180 days have passed after a trigger event (unless the stock option
cannot be exercised due to a restraint under the law, in which case
the stock option will terminate 10 business days after such
restraint is removed or becomes final and not subject to appeal, but
in no event later than the 365th day following such trigger event).
Pursuant to the terms of the stock option agreement, Chartwell's obligation
to deliver shares of Chartwell common stock upon exercise of the stock option is
subject only to the conditions that:
- any applicable waiting period under the Hart-Scott-Rodino Act has
expired or terminated;
- all other required consents, approvals, orders, authorizations of,
or registrations, declarations or filings with any federal, state or
local governmental entity have been obtained;
- the option shares have been approved for listing on the NYSE; and
- no preliminary or permanent injunction or other order or decree by
any court of competent jurisdiction, law or regulation prohibiting
or otherwise restraining such issuance is in effect.
Under the stock option agreement, Trenwick's total profit (as defined
below) may not exceed $9.0 million. If it otherwise would exceed such amount,
Trenwick will repay the excess amount to Chartwell in option shares delivered to
Chartwell for cancellation and/or cash paid to Chartwell. The term "total
profit" means the aggregate amount (before taxes) of:
- the amount of cash received by Trenwick as the termination fee and
as liquidated damages under the merger agreement, plus
- the net cash amounts received by Trenwick from the sale of option
shares, less
- Trenwick's purchase price for such option shares.
Furthermore, Trenwick may not exercise the stock option for a number of
shares of Chartwell common stock that would, as of the date of the exercise
notice, result in a notional total profit (as defined below) of more than $9.0
million. If exercise of the stock option otherwise would cause Trenwick to
realize a notional total profit of more than $9.0 million, Trenwick, at its
discretion, may increase the option purchase price for a number of shares of
Chartwell common stock specified in the exercise notice so that the notional
total profit will not exceed $9.0 million. This restriction will not restrict
any exercise of the stock option permitted on any subsequent date at the option
purchase price.
The term "notional total profit" means, with respect to any number of
option shares as to which Trenwick proposes to exercise the stock option, the
total profit determined as of the date of the exercise notice. For this purpose,
the total profit is calculated assuming that Trenwick exercised the stock option
on the date of the exercise notice for that number of shares of Chartwell common
stock and assuming that those shares, together with all other shares of
Chartwell common stock held by Trenwick and its subsidiaries as of the date of
the exercise notice, were sold for cash at the closing market price of Chartwell
common stock at the close of business on the preceding trading day.
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AMENDMENT TO THE TRENWICK 1993 STOCK OPTION PLAN
An amendment to the Trenwick Group Inc. 1993 Stock Option Plan is being
submitted by the Trenwick board of directors for approval by the Trenwick
stockholders. If approved, the amendment would take effect upon the completion
of the merger. This amendment will not take effect if the merger is not
completed. The following discussion of the plan and the proposed amendment does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, the text of the plan, which is incorporated herein by reference
and is attached as Appendix E to this document.
PROPOSED AMENDMENT
Trenwick's board of directors has approved an amendment to the plan to
increase the number of shares of Trenwick common stock authorized for issuance
under the plan by 125,000 shares. As currently in effect, the plan provides for
the issuance of up to 1,675,000 shares of common stock. Since the plan was
adopted, the Compensation Committee of Trenwick's board of directors has granted
options for 938,420 shares under the plan, none of which have been exercised,
and has awarded 119,473 restricted shares under the plan, leaving 617,107 shares
available for potential future awards. If the stockholders approve the proposed
amendment, upon completion of the merger a total of 742,107 shares would be
available for future awards. The amendment will be adopted if it is approved by
the affirmative vote of a majority of the votes duly cast at the Trenwick
special meeting.
There are currently 150,750 shares reserved for issuance under Trenwick's
other stock plans, of which 83,250 shares are reserved for outstanding options
under the 1989 Stock Plan (which is terminated as to future awards) and 49,500
shares are reserved for outstanding options and 18,000 shares are reserved for
future awards under the 1993 Non-Employee Directors Stock Option Plan. Upon
completion of the merger, approximately 1,172,573 additional shares of Trenwick
common stock will be reserved for issuance upon the exercise of options issued
under Chartwell's stock plans and approximately 275,989 additional shares of
Trenwick common stock will be reserved for issuance upon the exercise of
Chartwell warrants.
The Trenwick board of directors believes that stock-based compensation
promotes continuity of management and increased incentive and personal interest
in Trenwick's welfare by those who are responsible for shaping and carrying out
its long-range plans and securing its continued growth and financial success.
Because the challenges of integrating Trenwick and Chartwell into a successful
company after the merger will require the dedicated efforts of executive
officers and other key employees, the board of directors believes that stock
awards will play an even more important role in providing incentive for these
individuals. With the expected addition of a substantial number of new plan
participants as the result of the merger, including additional executive
officers, the shares remaining in the plan will be insufficient for the
continued success of the plan over its term. The Trenwick board of directors
believes that this amendment will assure that the plan is appropriately designed
to fulfill its goals for the foreseeable future.
THE PLAN
Purpose. The plan is intended to strengthen the ability of Trenwick and
its subsidiaries to attract and retain highly qualified employees by providing
them with added incentive to render high levels of performance and effective
service in connection with their employment through the opportunity for common
stock ownership.
Administration. The plan is administered by the compensation committee of
Trenwick's board of directors. None of the committee members are eligible to
participate in the plan. The committee, among other things, determines which
qualified employees will receive restricted share, option and stock appreciation
right awards, the time of each award, the size and exercise price of each award,
whether to grant restricted shares or options and whether an option shall be an
incentive stock option or a nonqualified stock option, and the terms of
restricted shares, options and stock appreciation rights, all subject to the
express requirements of the plan.
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<PAGE> 75
Shares Subject to the Plan. With the adoption of the proposed amendment, a
total of 1,800,000 shares of Trenwick common stock will be authorized for
issuance under the plan, subject to the discretion of the board of directors in
the case of various types of capital or corporate adjustments or other changes.
Shares subject to any part of an option which terminates unexercised for any
reason will be available for future awards. No individual may receive, in the
aggregate, awards under the plan covering more than 450,000 shares, and no
awards may be made under the plan after December 14, 2003.
Eligibility. Only qualified employees may receive awards. A qualified
employee is defined as a person designated by the compensation committee who is
employed by Trenwick or a subsidiary on a salaried basis (including an officer
who is also a director) and whose performance has had or could have a
significant effect on the current or long-term success of Trenwick or a
subsidiary. Currently, employees participate in the plan. The number of
current Chartwell employees expected to participate in the plan after the
completion of the merger cannot be determined at this time and will depend upon
how many of those employees become employees of Trenwick or its subsidiaries and
what positions they hold.
Option Exercise Price. The price at which options may be exercised may not
be less than 100% of the fair market value of the shares on the date of grant.
The exercise price of each option granted under the plan to date has been equal
to the fair market value of the shares on the date of grant. Upon the exercise
of an option, the exercise price is to be paid in cash, in shares of Trenwick
common stock which have been held for at least six months, valued at their fair
market value at the time of exercise, by a promissory note containing terms
determined by the compensation committee, or by a combination of any of those
methods. The plan also allows an optionee to pay the exercise price with the
proceeds of the sale of a portion of the shares obtained upon the exercise. The
issuance of options at fair market value on the date of grant constitutes
performance-based compensation under Section 162(m) of the Internal Revenue
Code, as further discussed in "Other Information for the Trenwick Special
Meeting -- Report of the Compensation Committee on the Compensation of
Trenwick's Executive Officers."
Other Option Terms. The compensation committee determines when an option
becomes exercisable. Each option granted under the plan prior to March 1998
becomes fully exercisable on a fixed date (ranging from just under eight years
from the date of grant to 9 1/2 years from the date of grant), subject to
acceleration if Trenwick's common stock trades at or above specified targets.
The terms of the options granted in March 1998 and March 1999 provide that they
become exercisable in five annual 20% installments beginning on the first
anniversary of their grant date. If an option is not fully exercisable at the
time of occurrence of a change in control, as defined in the plan, all portions
of the option become immediately exercisable in full.
Options terminate at the earliest of ten years after the date of grant,
five years after retirement, immediately, if employment is terminated for cause,
one month after any voluntary termination of employment other than retirement,
180 days after the date of the holder's death (but the option may only be
exercised to the extent it was exercisable on the date of such events) or any
earlier time set by the compensation committee at the time of the option grant.
All options granted to date terminate in accordance with the described schedule.
An option is exercisable only by the optionee. No option is transferable
except by will or the laws of descent and distribution.
Stock Appreciation Rights. A stock appreciation right permits an optionee
to surrender option shares rather than exercise the option and then receive
payment in cash, in shares of Trenwick common stock, or by a combination of both
(as decided by the compensation committee), equal to the fair market value of
the surrendered option shares minus their exercise price. The compensation
committee has the discretion to grant a stock appreciation right in conjunction
with an option grant or with respect to a previously granted option. A stock
appreciation right may only be exercised if, and for so long as, the related
option is exercisable. Shares as to which a stock appreciation right is
exercised will not be available for future awards under the plan. No stock
appreciation rights have been granted under the plan to date.
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<PAGE> 76
Restricted Shares. A restricted share award is an award of shares of
common stock that may not be sold, assigned, or otherwise disposed of (that is,
it does not "vest") for a period of time determined by the compensation
committee at the time of the award. The restricted shares awarded under the plan
to date vest in five annual 20% installments beginning on the first anniversary
of their award date. Except for the restriction against transfer until vesting,
the recipient of the award has all rights of a Trenwick stockholder, including
the right to vote the shares at stockholder meetings and the right to receive
dividends paid on the shares. The number of restricted shares that may be
awarded to plan participants in any one calendar year may not exceed 25% of the
gross annual aggregate salaries of all qualified employees, divided by the
closing market price of Trenwick's common stock on the day prior to the date of
award. Upon the occurrence of a change in control, all restrictions will be
removed and the restricted shares will be deemed to have vested. If a holder of
restricted shares terminates employment, his or her unvested restricted shares
will be forfeited and will be cancelled and unavailable for future awards under
the plan. However, if the termination of employment is the result of death or
disability, all of the restricted shares which would have otherwise vested in
the year of such death or disability will immediately vest.
Tax Withholding. Trenwick may, as options are exercised or as restricted
shares vest, pay to the participant upon request a cash amount up to the
aggregate minimum federal, state and local income tax withholding obligations
that arise to the participant. This cash payment, which is determined based on
the fair market value of the shares, is made in lieu of delivering the option
shares or restricted shares and is applied by Trenwick to the satisfaction of
the tax withholding obligations. To the extent that this type of cash payment is
made, the corresponding number of shares having the same fair market value are
charged against the total number of shares reserved under the plan.
Federal Income Tax Consequences to Trenwick and the Participant.
Incentive Stock Options
Options granted under the plan which constitute incentive stock options
will, in general, be subject to the following federal income tax treatment:
- A grant will give rise to no federal income tax consequences to Trenwick
or the participant.
- An exercise will result in no federal income tax consequences to
Trenwick.
- An exercise will not result in ordinary federal taxable income to the
participant, but may result in the imposition of or an increase in the
alternative minimum tax. If shares acquired upon exercise are not
disposed of within the same taxable year as the option is exercised, the
excess of the fair market value of the shares at the time the option is
exercised over the option price is included in the participant's
computation of alternative minimum taxable income.
- If shares acquired upon an exercise are disposed of within two years of
the date of the option grant, or within one year of the date of the
exercise, the participant will realize ordinary federal taxable income at
the time of the disposition to the extent that the fair market value of
the shares at the time of exercise exceeds the option price, but not in
an amount greater than the excess, if any, of the amount realized on the
disposition over the option price. Short-term or long-term capital gain
will be realized by the participant at the time of such a disposition to
the extent that the amount of proceeds from the sale exceeds the fair
market value at the time of the exercise. Short-term or long-term capital
loss will be realized by the participant at the time of such a
disposition to the extent that the option price exceeds the amount of
proceeds from the sale. If a disposition is made as described in this
section, Trenwick will be entitled to a federal income tax deduction in
the taxable year in which the disposition is made in an amount equal to
the amount of ordinary federal taxable income realized by the
participant. If shares acquired upon an exercise are disposed of after
the later of two years from the date of the option grant or one year from
the date of the option exercise, the participant will realize long-term
capital gain or loss in an amount equal to the difference between the
amount realized by the participant on the disposition and the
participant's
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<PAGE> 77
federal income tax basis in the shares, usually the option price. In such
event, Trenwick will not be entitled to any federal income tax deduction.
Non-Qualified Stock Options
Nonqualified stock options granted under the plan (which constitute all
options granted under the plan to date) will, in general, be subject to the
following federal income tax treatment:
- A grant will give rise to no federal income tax consequences to either
Trenwick or the participant.
- An exercise will generally result in ordinary federal taxable income to
the participant in an amount equal to the excess of the fair market value
of the shares at the time of exercise over the option price.
- A deduction from federal taxable income will be allowed to Trenwick in an
amount equal to the amount of ordinary income recognized by the
participant, provided Trenwick deducts and withholds all appropriate
federal withholding tax.
- Upon a subsequent disposition of shares, a participant will recognize a
short-term or long-term capital gain or loss equal to the difference
between the amount received and the tax basis of the shares, usually
their fair market value at the time of exercise.
Stock Appreciation Rights
Any stock appreciation rights which may be granted in conjunction an option
will be subject to the following federal income tax treatment:
- A grant will give rise to no federal income tax consequences to either
Trenwick or the participant.
- Upon an exercise, the economic value received by the participant, which
is the excess of the fair market value of the shares on the date of the
exercise over the option price, will be taxable to the participant as
ordinary federal taxable income. Trenwick will receive a federal income
tax deduction in an amount equal to the income realized by the
participant.
Restricted Shares
Restricted shares awarded under the plan will be subject to the following
federal income tax treatment:
- An award will give rise to no federal income tax consequences to either
Trenwick or the participant.
- When restricted shares vest, the participant will realize ordinary income
equal to the then fair market value of the restricted shares. Cash
dividends received on restricted shares are also taxable to the
participant as ordinary income. A deduction from federal taxable income
will be allowed to Trenwick in an amount equal to the amount of ordinary
income recognized by the participant, provided Trenwick deducts and
withholds all appropriate federal withholding tax.
- Upon a subsequent disposition of vested shares, the participant will
realize a short-term or long-term capital gain or loss in an amount equal
to the difference between the amount of proceeds from the sale and the
tax basis of the shares, usually fair market value at the date of
vesting.
- Under a special provision of the Internal Revenue Code, a participant may
elect within the 30-day period after an award of restricted shares to
include in ordinary income for that year the fair market value of the
shares (without considering the restrictions on them) at the date of
award. If the election is made, Trenwick would be allowed a deduction
against income in the same year and in the same amount. While no
additional income would be recognized by the participant upon the vesting
of the shares, no loss would be allowed to the participant upon
subsequent forfeiture of any shares on which tax was paid. If any
restricted shares are forfeited under the plan, in the year of forfeiture
Trenwick would, however, be required to include in income any amount it
had earlier
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<PAGE> 78
deducted related to those shares. The participant's basis in the shares
for computing gain or loss on a subsequent disposition would be equal to
the fair market value at the date of award which the participant included
in income under the election.
The federal income tax consequences described in this section are based on
laws and regulations in effect on the date of this document. Future changes in
those laws and regulations may affect the tax consequences described in this
section. No discussion of state or local income tax treatment has been included.
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSAL TO AMEND THE PLAN IS IN
THE BEST INTERESTS OF TRENWICK AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR"
APPROVAL OF THE AMENDMENT TO THE 1993 STOCK OPTION PLAN.
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<PAGE> 79
THE TRENWICK SPECIAL MEETING
GENERAL; DATES, TIMES AND PLACES
This document is first being mailed to the holders of Trenwick common
stock, on or about September 8, 1999. This document is accompanied by the notice
of the special meeting and a form of proxy that is solicited by the board of
directors of Trenwick for use at the Trenwick special meeting to be held on
October 7, 1999, at 9:00 a.m., local time, at the Hyatt Regency Greenwich, 1800
East Putnam Avenue, Old Greenwich, Connecticut 06870. This document is also
being furnished to Chartwell stockholders as a prospectus in connection with the
issuance by Trenwick of shares of Trenwick common stock pursuant to the merger
agreement.
PURPOSE OF THE TRENWICK SPECIAL MEETING
At the Trenwick special meeting, Trenwick stockholders will be asked to
consider and vote upon a proposal to adopt the merger agreement and approve the
merger and the related issuance of Trenwick common stock to Chartwell
stockholders in completion of the merger and to consider and vote upon the
addition of shares to a Trenwick stock plan to take effect upon completion of
the merger.
REVOCATION OF PROXIES
If you sign and mail the enclosed proxy, you may revoke it at any time
before it is voted by giving written notice of revocation to Trenwick, by
mailing a later dated proxy which is received by Trenwick prior to the Trenwick
special meeting or by voting in person at the Trenwick special meeting. You
should address all written notices of revocation and other communications with
respect to revocation of Trenwick proxies to Trenwick Group Inc., One Canterbury
Green, Stamford, Connecticut 06901, Attention: Jane T. Wiznitzer.
RECORD DATE; VOTING POWER
All voting rights for the Trenwick special meeting are vested exclusively
in the Trenwick stockholders, with each share entitled to one vote. Only holders
of shares of Trenwick common stock of record at the close of business on the
record date, which is September 1, 1999, are entitled to notice of and to vote
at the Trenwick special meeting. Trenwick stockholders are not entitled to
appraisal rights in connection with the merger. See "Comparison of Rights of
Trenwick Stockholders and Chartwell Stockholders -- Appraisal Rights."
QUORUM; VOTE REQUIRED
Delaware corporation law, the Trenwick Restated Certificate of
Incorporation, the Trenwick By-Laws and the Exchange Act contain requirements
governing the actions of Trenwick stockholders at the Trenwick special meeting.
The Trenwick By-Laws provide that holders of a majority of the outstanding
shares of Trenwick common stock entitled to vote on the Trenwick record date
must be present, either in person or by proxy, at the Trenwick special meeting
to constitute a quorum. See "Comparison of Rights of Trenwick Stockholders and
Chartwell Stockholders." In general, abstentions and broker non-votes will be
counted as present or represented for the purposes of determining a quorum for
the Trenwick special meeting.
Adoption of the merger agreement and approval of the merger and the related
issuance of Trenwick common stock to Chartwell stockholders in completion of the
merger require the affirmative vote by the holders of at least a majority of the
shares of Trenwick common stock outstanding as of the Trenwick record date.
Approval of the stock plan amendment requires the affirmative vote of a majority
of the votes duly cast with respect to the amendment. Under NASDAQ rules,
brokers and nominees are precluded from exercising their voting discretion on
the matters proposed to be voted upon at the special meeting. For this reason,
absent specific instructions from the beneficial owner of shares, brokers and
nominees may not vote on the proposals. Because the affirmative vote of the
holders of a majority of the shares of
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<PAGE> 80
Trenwick common stock outstanding as of the Trenwick record date is required for
adoption of the merger agreement and approval of the merger, an abstention or a
broker non-vote with respect to the proposal to adopt the merger agreement and
approve the merger will have the effect of a vote against the merger agreement
and the merger. However, because the affirmative vote of a majority of the votes
duly cast is required to approve the stock plan amendment, an abstention or
broker non-vote with respect to the stock plan proposal will not have the effect
of a vote against the proposal. The Trenwick board of directors urges the
Trenwick stockholders to complete, date and sign the accompanying proxy and
return it promptly in the enclosed, postage-paid envelope.
Additional information with respect to beneficial ownership of Trenwick
common stock by persons and entities owning more than 5% of such stock and more
detailed information with respect to beneficial ownership of Trenwick common
stock by directors and executive officers of Trenwick is set forth in "Other
Information for the Trenwick Special Meeting -- Security Ownership of Certain
Beneficial Owners and Management."
As of the date of this document, Chartwell beneficially owns less than 100
shares of Trenwick common stock.
EXPENSES OF SOLICITATION
Trenwick will pay the expenses of the solicitation of proxies with respect
to the Trenwick special meeting. In addition to solicitation by mail, Trenwick
will make arrangements with brokers and other custodians, nominees and
fiduciaries to send proxy materials to their principals and will, upon request,
reimburse them for reasonable expenses of so doing. Trenwick's officers,
directors, consultants and employees may solicit proxies from some Trenwick
stockholders by telephone, facsimile, or in person after the initial
solicitation. In addition, Trenwick has retained D.F. King & Co., Inc. to assist
Trenwick in the solicitation of proxies. D.F. King may contact Trenwick
stockholders by mail, telephone, facsimile, telegraph and personal interviews
and may request brokers, dealers and other nominee stockholders to forward
materials to the beneficial owners of shares of Trenwick common stock. D.F. King
will receive reasonable and customary compensation for its services, which is
anticipated to be approximately $7,500, Trenwick will also reimburse D.F. King
for certain reasonable out-of-pocket expenses and will indemnify D.F. King
against certain liabilities and expenses in connection with its solicitation
activities on behalf of Trenwick, including certain liabilities under the
federal securities laws.
MISCELLANEOUS
We do not expect that matters not referred to in this document will be
presented for action at the Trenwick special meeting. If any other matters are
properly brought before the Trenwick special meeting, the persons named on the
accompanying proxy card will vote the shares represented by the proxy upon such
matters in their discretion. Such other matters could include, without
limitation, a motion to adjourn or postpone the meeting to another time and/or
place for the purpose of, among other things, permitting dissemination of
information regarding material developments relating to the merger agreement and
the merger, or soliciting additional proxies in favor of the adoption of the
merger agreement and approval of the merger. However, if Trenwick proposes to
adjourn or postpone the Trenwick special meeting for the purpose of soliciting
additional votes in favor of the merger agreement and the merger, and seeks a
vote of Trenwick stockholders on such proposal, no proxy that is voted against
the merger agreement and merger on the proxy card (or on which a Trenwick
stockholder elects to abstain on such matter) will be voted in favor of any
adjournment or postponement for the purpose of soliciting additional proxies.
Any other proxy will be deemed to have voted "FOR" such an adjournment or
postponement proposal if such a proposal is made. If the Trenwick special
meeting is reconvened, all proxies will be voted in the same manner as they
would have been voted at the original meeting, except for proxies that are
effectively revoked or withdrawn before the reconvened meeting.
TRENWICK STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS. TRENWICK STOCKHOLDERS WILL NOT EXCHANGE THEIR STOCK CERTIFICATES IN
CONNECTION WITH THE MERGER.
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OTHER INFORMATION FOR THE TRENWICK SPECIAL MEETING
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists the stockholders known to Trenwick to be
beneficial owners of more than five percent of Trenwick's outstanding common
stock, as of the record date of the special meeting, based upon information
filed by these stockholders with the SEC or otherwise provided by these
stockholders to Trenwick. These stockholders hold sole voting and dispositive
power over such shares except as noted.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME & ADDRESS OWNED PERCENT
- -------------- ------------ -------
<S> <C> <C>
The Prudential Insurance Company of America................. 1,453,400(1) 13.7%
751 Broad Street
Newark, New Jersey 07102
NewSouth Capital Management, Inc............................ 1,132,606(2) 10.7%
1000 Ridgeway Loop Road, Suite 233
Memphis, Tennessee 38120
Royce & Associates Inc...................................... 859,715(3) 8.0%
Royce Management Company
Charles M. Royce
1414 Avenue of the Americas
New York, New York 10019
Reich & Tang Asset Management L.P. ......................... 714,600(4) 6.7%
600 Fifth Avenue
New York, New York 10020
Orion Capital Corporation................................... 608,269(5) 5.7%
9 Farm Springs Road
Farmington, Connecticut 06032
</TABLE>
- ---------------
(1) Based upon information contained in Amendment No. 6, dated January 29, 1999,
to Schedule 13G filed with the SEC. The Prudential Insurance Company may
have direct or indirect voting and/or investment discretion over the shares,
which are held for the benefit of its clients by its separate accounts,
externally managed accounts, registered investment companies, subsidiaries
and/or other affiliates, so that in the aggregate sole voting and
dispositive power is held over 1,091,200 shares and shared voting power and
dispositive power is held over 362,200 shares.
(2) Based upon information contained in Amendment No. 4, dated February 8, 1999,
to Schedule 13G filed with the SEC. The filing states that of the reported
shares, an aggregate of 104,103 shares are managed by NewSouth Capital
Management, a registered investment adviser, through various programs
whereby accounts are placed with NewSouth Capital Management for management
and the respective programs retain responsibility for SEC filings should
their cumulative holdings trigger the need for 13G reporting. Sole voting
power is held over 1,121,106 shares; shared voting power is held over 11,500
shares and sole dispositive power is held over all the shares.
(3) Based upon information contained in Amendment No. 2, dated February 9, 1999,
to Schedule 13G filed with the SEC. Royce & Associates holds sole voting and
dispositive power over 859,715 shares and Royce Management Company holds
sole voting and dispositive power over 25,650 shares. Both are registered
investment advisers. Mr. Royce may be deemed a controlling person of those
entities.
(4) Based upon information contained in Schedule 13G, dated February 12, 1999,
filed with the SEC. The shares were purchased by Reich & Tang, a registered
investment adviser, on behalf of certain accounts (none of which has a
greater than 5% interest in the stock) for which Reich & Tang provides
investment advice on a fully discretionary basis. Reich & Tang holds shared
voting and dispositive power over the shares.
(5) Based upon information contained in Amendment No. 5 dated March 18, 1997, to
Schedule 13G filed with the SEC and additional information subsequently
provided to Trenwick. The shares are held by
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<PAGE> 82
Orion Capital's wholly-owned subsidiaries, DPIC Companies, Inc. (146,200
shares), EBI Companies, Inc. (120,000 shares) and Security Insurance Company
of Hartford (342,069 shares).
The following table reflects information as of the record date of the
special meeting regarding the number of shares of Trenwick's common stock
beneficially owned by each director, by the executive officers named in the
summary compensation table on page 74 and by all those directors and executive
officers as a group:
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL OWNERSHIP(1)
---------------------------
NUMBER OF SHARES
COMMON STOCK PERCENT
---------------- -------
<S> <C> <C>
DIRECTORS
W. Marston Becker......................................... 613,019(2) 5.8%
Anthony S. Brown.......................................... 9,075(3) *
Neil Dunn................................................. 8,250(3) *
P. Anthony Jacobs......................................... 9,750(3) *
Joseph D. Sargent......................................... 123,426(3)(4) 1.2%
Frederick D. Watkins...................................... 12,450(3) *
Stephen R. Wilcox......................................... 6,750(3) *
NAMED EXECUTIVE OFFICERS
James F. Billett, Jr. .................................... 295,755(5) 2.8%
Stephen H. Binet.......................................... 80,676(6) 0.8%
Pierre D. Croizat......................................... 11,034(7) 0.1%
Paul Feldsher............................................. 76,514(8) 0.7%
Robert A. Giambo.......................................... 57,933(9) 0.5%
Alan L. Hunte............................................. 83,862(10) 0.8%
James E. Roberts.......................................... 32,878(11) 0.3%
Directors and executive officers as a group (14
individuals).............................................. 1,420,372 13.1%
</TABLE>
- ---------------
* Less than 0.1%
(1) Includes, in each case, shares deemed to be beneficially owned by the
person because he holds or shares investment or voting power. Includes, as
to directors, a total of 44,250 shares subject to outstanding stock options
which are exercisable within 60 days of the date of this document.
Includes, as to executive officers, a total of 154,920 shares subject to
outstanding stock options which are exercisable within 60 days of the date
of this document and 96,743 restricted shares not vested within 60 days of
the date of this document, but which have full dividend and voting rights
and which are included in the computation of the executive officers'
percentage of beneficial ownership.
(2) Includes 3,750 shares subject to stock options which are exercisable within
60 days of the date of this document. Also includes 608,269 shares
attributed to Orion Capital Corporation as set forth in the previous table.
Mr. Becker is Chairman of the Board and Chief Executive Officer of Orion
Capital Corporation and serves on its investment and executive committees.
Mr. Becker disclaims beneficial ownership of the shares attributed to Orion
Capital Corporation.
(3) Includes 6,750 shares subject to stock options which are exercisable within
60 days of the date of this document.
(4) Also includes 30,150 shares owned by relatives or held in trust for them,
as to which Mr. Sargent disclaims beneficial ownership.
(5) Includes 27,415 shares subject to stock options which are exercisable
within 60 days of the date of this document and 26,076 restricted shares
which are not vested within 60 days of the date of this document, but which
have full dividend and voting rights.
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<PAGE> 83
(6) Includes 30,958 shares subject to stock options which are exercisable
within 60 days of the date of this document and 14,009 restricted shares
which are not vested within 60 days of the date of this document, but which
have full dividend and voting rights.
(7) Includes 5,000 shares subject to stock options which are exercisable within
60 days of the date of this document and 6,034 restricted shares which are
not vested within 60 days of the date of this document, but which have full
dividend and voting rights.
(8) Includes 28,708 shares subject to stock options which are exercisable
within 60 days of the date of this document and 12,387 restricted shares
which are not vested within 60 days of the date of this document, but which
have full dividend and voting rights.
(9) Includes 27,173 shares subject to stock options which are exercisable
within 60 days of the date of this document and 11,281 restricted shares
which are not vested within 60 days of the date of this document, but which
have full dividend and voting rights.
(10) Includes 27,583 shares subject to stock options which are exercisable
within 60 days of the date of this document and 11,827 restricted shares
which are not vested within 60 days of the date of this document, but which
have full dividend and voting rights.
(11) Includes 8,083 shares subject to stock options which are exercisable within
60 days of the date of this document and 15,129 restricted shares which are
not vested within 60 days of the date of this document, but which have full
dividend and voting rights.
DIRECTORS' COMPENSATION
For the year ended December 31, 1998, each non-employee director chairing a
board of directors committee received an annual retainer of $17,500, and each
other non-employee director received an annual retainer of $15,000. In addition,
each non-employee director received a fee of $1,000 for each board of directors
meeting attended, plus reimbursement of all customary expenses incurred in
connection with attendance at meetings. Directors who served on the various
board of directors committees each received, in addition to the above amounts, a
meeting fee of $750 per committee meeting attended in conjunction with a
regularly scheduled board of directors meeting and $1,000 per committee meeting
attended not in conjunction with a regularly scheduled board of directors
meeting, plus reimbursement of customary expenses incurred in connection with
attendance at each committee meeting. Effective July 1, 1999, the annual
retainer was increased to $25,000 for each non-employee director chairing a
committee and $20,000 for each other non-employee director. Trenwick also pays
the premium to provide the directors with $250,000 of coverage under a group
travel accident insurance policy.
Under Trenwick's deferred compensation plan, non-employee directors may
elect to defer receipt of all or a portion of fees to be earned in the next
succeeding year and have such fees accrue either at the interest rate determined
by the compensation committee or based upon the performance of Trenwick's common
stock, including any dividends paid on the stock. A participating non-employee
director will receive all deferred amounts in one payment on the first business
day of the year following the year in which he or she ceases to be a director.
OTHER COMPENSATION FOR OUTSIDE DIRECTORS
Trenwick maintains a retirement plan which covers non-employee directors.
At the time of retirement, a director becomes entitled to receive, for that
number of years equal to the number of years of service as a director, an annual
pension benefit equal to 50% of the amount of the director's final annual
retainer.
Under the 1993 Stock Option Plan for Non-Employee Directors, each of
Trenwick's eligible non-employee directors receives a one-time grant of an
option for 3,000 shares of Trenwick's common stock and an option for an
additional 750 shares immediately following each annual meeting.
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<PAGE> 84
EXECUTIVE COMPENSATION
The following table contains information concerning the annual and
long-term compensation for services in all capacities to Trenwick for the
calendar years ended December 31, 1998, 1997 and 1996 of all persons who were,
at December 31, 1998, the Chief Executive Officer and the six other most highly
paid officers of Trenwick.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------- -----------------------
RESTRICTED SECURITIES
OTHER ANNUAL SHARE UNDERLYING ALL OTHER
NAME & SALARY BONUS COMPENSATION AWARDS OPTIONS/ COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3) ($)(4) SARS(#) ($)(5)
- ------------------ ---- ------- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
James F. Billett, Jr....... 1998 526,928 350,000 76,274 739,245 24,573 125,417
Chairman, President & 1997 446,492 405,000 88,201 108,183
Chief Executive Officer 1996 430,496 375,000 84,373 97,717
Stephen H. Binet........... 1998 288,472 175,000 393,266 12,287 34,155
Executive Vice President, 1997 247,692 200,000 32,490
Trenwick America Re 1996 237,808 175,000 30,667
Pierre Croizat............. 1998 330,971 300,000 25,000 16,419
Chairman, Trenwick 1997 78,462
International*
Paul Feldsher.............. 1998 241,923 225,000 360,016 12,287 34,177
Executive Vice President, 1997 212,692 225,000 32,509
Trenwick America Re 1996 203,038 150,000 30,686
Robert A. Giambo........... 1998 236,154 200,000 310,501 10,239 34,186
Executive Vice President
& Chief Actuary, 1997 187,692 200,000 32,518
Trenwick America Re 1996 177,923 125,000 30,694
Alan L. Hunte.............. 1998 236,154 250,000 335,516 12,287 34,181
Vice President, 1997 187,692 250,000 32,513
Chief Financial Officer & 1996 177,923 125,000 30,690
Treasurer
James E. Roberts........... 1998 300,014 175,000 442,266 12,287 32,761
Vice Chairman, Trenwick 1997 296,769 200,000 31,240
America Re 1996 283,462 175,000 15,000 29,480
</TABLE>
- ---------------
* Mr. Croizat is also Managing Director and Chief Executive Officer of
Trenwick Holdings. He joined Trenwick in September 1997.
(1) Includes all before-tax contributions to Trenwick's 401(k) savings plan.
(2) Includes cash bonus awards earned for the indicated calendar years.
(3) Consists of personal benefits provided by Trenwick for the indicated
calendar years in which the amounts exceeded the lesser of $50,000 or ten
percent of the named executive's combined salary and bonus for the year.
Includes $43,653 for each of 1998, 1997 and 1996 for supplemental whole life
and health benefits and, for 1998, 1997 and 1996, respectively, automobile
expenses of $29,121, $38,868, and $35,040.
(4) Amounts reflect (a) restricted shares awarded as follows on January 20,
1998, based on the closing price per share on such date of $35.00: Mr.
Billett, 12,550 shares, Mr. Binet, 6,950 shares, Mr. Feldsher, 6,000 shares,
Mr. Giambo, 5,300 shares, Mr. Hunte, 5,300 shares and Mr. Roberts, 8,350
shares; and (b) restricted shares awarded as follows on March 4, 1998, based
on the closing price per share on such date of $36.625: Mr. Billett, 8,191
shares, each of Messrs. Binet, Feldsher, Hunte and Roberts, 4,096 shares,
and Mr. Giambo, 3,413 shares.
74
<PAGE> 85
The restricted shares vest in equal annual installments over five years from
the date of award, beginning in 1999. Dividends are paid on restricted
shares at the same rate as paid to all stockholders and, as permitted, those
amounts have not been included in this table. The aggregate total of
unvested restricted share holdings of each of the named executives as of
December 31, 1998, at the then applicable market price per share of $32.625,
were as follows:
<TABLE>
<CAPTION>
UNVESTED
NAME RESTRICTED SHARES VALUE($)
- ---- ----------------- --------
<S> <C> <C>
James F. Billett, Jr. ..................... 20,741 676,675
Stephen H. Binet........................... 11,046 360,378
Pierre Croizat............................. -- --
Paul Feldsher.............................. 10,096 329,382
Robert A. Giambo........................... 8,713 284,262
Alan L. Hunte.............................. 9,396 306,545
James E. Roberts........................... 12,446 406,051
</TABLE>
(5) Includes Trenwick's contributions to the its 401(k) savings plan on behalf
of each of the named executives other than Mr. Croizat (who did not
participate in 1998) of $9,600 in 1998, $9,500 in 1997 and $9,000 in 1996
(the maximum contribution under the plan in each case). Also includes
contributions to Trenwick's pension plan, a qualified defined contribution
plan, of $12,800 in 1998, $12,800 in 1997 and $12,000 in 1996 for each of
the named executives other than Mr. Croizat, who became eligible to
participate in the last quarter of 1998 and for whom $7,539 was contributed
in 1998. Also includes contributions made and interest credited for each of
these executives to Trenwick's supplemental executive retirement plan
(consisting of contributions in excess of pension plan contribution limits
imposed by the Internal Revenue Code). For Mr. Billett, contributions were
$61,754, $52,920 and $49,276, respectively, and interest credited was
$41,262, $32,963 and $27,441, respectively, for 1998, 1997 and 1996. For
1998, the contribution for each of the other executives was $8,800, and
interest credited was $2,875, $2,897, $2,906, $2,901 and $1,481 and for
Messrs. Binet, Feldsher, Giambo, Hunte and Roberts, respectively (Mr.
Croizat not having been credited with any contributions prior to December
31, 1998). For 1997, the contribution for each of the other executives
(except Mr. Croizat) was $8,240 and interest credited was $1,950, $1,969,
$1,978, $1,973 and $700 and for Messrs. Binet, Feldsher, Giambo, Hunte and
Roberts, respectively. For 1996, the contribution for each of the other
executives (except Mr. Croizat) was $8,480, and interest credited for
Messrs. Binet, Feldsher, Giambo and Hunte and was $1,187, $1,206, $1,214 and
$1,212, respectively (Mr. Roberts not having been credited with any
contributions prior to December 31, 1996).
75
<PAGE> 86
The following table contains information with respect to stock option
grants to these executives in 1998. The options, granted on February 27, 1998 to
Mr. Croizat and on March 4, 1998 to the others, pursuant to Trenwick's 1993
Stock Option Plan, become exercisable in five equal annual installments
beginning one year from the date of grant, but become immediately exercisable in
full in the event of a change in control of Trenwick. They are subject to
termination prior to their expiration date in the event of termination of the
executive's employment.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
NUMBER OF PERCENT OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM ($)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME GRANTED (#) FISCAL YEAR (%) ($/SH) DATE 5% 10%
- ---- ------------ ---------------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
James F. Billett, Jr......... 24,573 20.7 36.625 3/4/08 565,996 1,434,346
Stephen H. Binet............. 12,287 10.3 36.625 3/4/08 283,010 717,202
Pierre D. Croizat............ 25,000 21.0 36.500 2/27/08 573,866 1,454,290
Paul Feldsher................ 12,287 10.3 36.625 3/4/08 283,010 717,202
Robert A. Giambo............. 10,239 8.6 36.625 3/4/08 235,838 597,659
Alan L. Hunte................ 12,287 10.3 36.625 3/4/08 283,010 717,202
James E. Roberts............. 12,287 10.3 36.625 3/4/08 283,010 717,202
</TABLE>
The following table contains all stock options exercised during 1998 by
these executives and the number of unexercised options held by them at December
31, 1998. Also included is the value of "in-the-money" options on December 31,
1998. In-the-money options are options whose exercise price is less than the
fair market value of Trenwick's common stock.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS
OPTIONS/SARS AT FISCAL YEAR END
SHARES AT FISCAL YEAR END (#) ($)(2)
ACQUIRED VALUE ------------------------- ----------------------
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($)(1) UNEXERCISABLE UNEXERCISABLE
- ---- -------- -------- ------------------------- ----------------------
<S> <C> <C> <C> <C>
James F. Billett, Jr.......... 36,945 802,741 22,500/152,073 133,988/759,263
Stephen H. Binet.............. 15,000 329,113 28,500/88,787 152,318/455,558
Pierre D. Croizat............. -- -- 0/25,000 0/0
Paul Feldsher................. 18,750 456,188 26,250/76,037 138,919/379,631
Robert A. Giambo.............. 30,000 706,474 25,125/67,614 132,219/341,668
Alan L. Hunte................. -- -- 25,125/69,662 132,219/341,668
James E. Roberts.............. -- -- 5,625/59,162 20,391/115,547
</TABLE>
- ---------------
(1) Represents in each case the difference between the fair market value per
share of Trenwick's common stock on the date of exercise and the option
exercise price per share.
(2) Represents the difference between the closing price per share of Trenwick's
common stock on December 31, 1998 of $32.625 and the exercise price of
"in-the-money" options granted to each named executive.
76
<PAGE> 87
REPORT OF THE COMPENSATION COMMITTEE ON THE COMPENSATION OF TRENWICK'S EXECUTIVE
OFFICERS
The compensation committee of Trenwick's board of directors is composed
entirely of five independent outside directors, four of whom have served
together in such capacity since 1986. The fifth, committee chairman W. Marston
Becker, was named to the committee in May 1997. The committee meets periodically
to review and recommend for board approval Trenwick's compensation program for
senior executives and other key employees and independently administers
Trenwick's stock option and other incentive plans.
The guiding principle of the committee is to establish a compensation
program which aligns executive compensation with Trenwick's objectives, business
strategies and financial and operational performance. In this connection, the
committee seeks to:
(1) Attract and retain qualified executives, in a highly competitive
environment, who will play a significant role in the achievement of Trenwick's
goals.
(2) Create a performance-oriented environment that rewards performance with
respect to Trenwick's financial and operational goals and takes into account
industry-wide trends and performance levels.
(3) Reward executives for strategic management and the long-term
enhancement of stockholder value.
Compensation for the executives named in the summary compensation table on
page 73 consists of three key elements: base salary and benefits, discretionary
annual cash bonus and stock-based compensation. The committee seeks to weigh
each element both separately and collectively to ensure that the executive
officers are appropriately compensated in a manner that advances both the
short-term and long-term interests of the stockholders. The committee's
determinations are guided by the results of a comparative analysis of Trenwick's
executive compensation practices which was performed in 1997 by an independent
compensation consulting firm.
The base salary for each executive officer is set on the basis of the
salary levels in effect for comparable positions in the reinsurance industry,
adjusted for the executive's experience and performance level and internal
comparability considerations. Trenwick monitors industry salary levels through
its participation in an annual industry survey administered by a nationally
known compensation consulting firm. The committee believes that base salaries
should be adjusted from time to time with the objective of remaining within the
range of the 50th through the 75th percentiles of Trenwick's peers based on
survey information available to the committee.
In addressing the second compensation element, the committee considers a
menu of measures to be utilized in setting goals and evaluating annual
performance. These measures include return on equity, growth in earnings per
share, growth in dividend-adjusted book value per share, total return to
shareholders and combined ratio (calculated by dividing claims, claims expenses,
policy acquisition costs and underwriting expenses by net premiums earned), each
of which is considered on an absolute basis and in comparison to Trenwick's
peers, as well as the accomplishment of tactical and strategic objectives. The
committee fixes the amount that may be awarded to Trenwick's Chief Executive
Officer and an aggregate amount that may be awarded to other executive officers.
The Chief Executive Officer allocates awards among the other executive officers
up to the aggregate amount, which allocations are then reviewed and ratified by
the committee.
In authorizing 1998 bonuses for executive officers, the committee
emphasized the successful integration of Trenwick International (acquired during
the first quarter of 1998) into Trenwick's operations and the aggressive
approach to capital management reflected by the stock repurchase program
initiated in the last quarter of the year. The committee also took into account
the modest downturn reflected in the numerical measures specified in the
preceding paragraph. Based on these factors, the overall bonus pool for these
executives was maintained at its 1997 level.
77
<PAGE> 88
Trenwick's third compensation element, stock-based compensation, provides
each executive officer with a meaningful stockholding in Trenwick as a long-term
incentive and a mechanism for aligning the executive officers' interests with
those of the stockholders. Under Trenwick's employee stock plan, the committee
has the opportunity to award both stock options and restricted shares to
executive officers. Each is linked to the creation of stockholder value by
providing additional value to the executive as Trenwick's stock price increases.
Options are exercisable over an extended period of time and expire within ten
years of grant. Option grants are made at an exercise price not less than the
fair market value of the underlying stock at the time of grant. Restricted
shares cannot be transferred until the shares vest, with vesting occurring over
an extended time subject to the executive officer's continued employment. The
holder has all the rights and privileges of a stockholder with respect to the
restricted shares, other than the ability to transfer them, including the right
to vote and to receive dividends.
The 1997 compensation study recommended annual awards of restricted shares
and stock options with a potential total value of up to a maximum of 150% of the
recipient's annual salary. The committee believes that this structure, initiated
in March 1998, promotes the retention of key employees in a highly competitive
labor environment while emphasizing the alignment between their interests and
those of Trenwick's stockholders. In light of the cited performance measures,
1998's awards, distributed in March 1999, were made at the rate of 100% of 1998
salaries.
Compensation of the Chief Executive Officer
Mr. Billett's base salary is set using the same criteria as all other
executive officers. His 1998 cash bonus award was reduced from the prior year's
level in reflection of the performance factors cited above. His stock award was
set at 100% of 1998 salary, in line with the other executive officers.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public companies for compensation over $1 million paid to the chief
executive officer and the four other most highly compensated executive officers.
However, qualifying performance-based compensation is not subject to the
deduction limit if certain requirements are met. No Trenwick executive officer
was subject to the limitations of Section 162(m) in 1998. The committee
structures stock-based compensation for executive officers so as to qualify for
deductibility under the statute to the extent feasible. However, to maintain a
competitive position within Trenwick's peer group, the committee retains the
authority the approve stock-based compensation that may not be deductible.
Members of the Compensation Committee
W. Marston Becker, Chairman
Neil Dunn
P. Anthony Jacobs
Joseph D. Sargent
Frederick D. Watkins
78
<PAGE> 89
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph for the five year period commencing January
1, 1994 and ending December 31, 1998, comparing the yearly percentage change on
a dividend reinvestment basis of Trenwick's common stock against the cumulative
total stockholder return of the Standard & Poor's 500 Stock Index and the Dow
Jones Insurance-Property & Casualty Index.
[5 YEAR TOTAL RETURN CHART]
<TABLE>
<CAPTION>
DOW JONES INSURANCE-
TRENWICK S&P 500 INDEX PROPERTY & CASUALTY
-------- ------------- --------------------
<S> <C> <C> <C>
Dec. 1993 100.00 100.00 100.00
Dec. 1994 111.00 101.00 105.00
Dec. 1995 151.00 139.00 149.00
Dec. 1996 127.00 171.00 179.00
Dec. 1997i 160.00 229.00 261.00
Dec. 1998 143.00 294.00 282.00
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Trenwick's officers and
directors, and persons who own more than ten percent of a registered class of
Trenwick's common stock, to file reports of ownership and changes in ownership
with the SEC. Based on Trenwick's review of all filings received from these
"insiders" and on written representations from them, Trenwick believes there
were no Section 16 violations for 1998.
THE CHARTWELL SPECIAL MEETING
GENERAL; DATES, TIMES AND PLACES
This document is first being mailed to the holders of Chartwell common
stock on or about September 8, 1999. This document is accompanied by the notice
of the Chartwell special meeting and a form of proxy that is solicited by the
board of directors of Chartwell for use at the Chartwell special meeting to be
held on October 7, at 9:00 a.m., local time, at Four Stamford Plaza, 107 Elm
Street, 15th Floor, Stamford, Connecticut 06902. This document is also furnished
to Chartwell stockholders as a prospectus in connection with the issuance by
Trenwick of shares of Trenwick common stock pursuant to the merger agreement.
PURPOSE OF THE CHARTWELL SPECIAL MEETING
At the Chartwell special meeting, Chartwell stockholders will be asked to
consider and vote upon a proposal to adopt the merger agreement and approve the
merger.
79
<PAGE> 90
REVOCATION OF PROXIES
If you sign and mail the enclosed proxy, you may revoke it at any time
before it is voted by giving written notice of revocation to Chartwell, by
mailing a later dated proxy which is received by Chartwell prior to the
Chartwell special meeting or by voting in person at the Chartwell special
meeting. You should address all written notices of revocation and other
communications with respect to revocation of Chartwell proxies to Chartwell Re
Corporation, Four Stamford Plaza, 107 Elm Street, 15th Floor, Stamford,
Connecticut 06902, Attention: Corporate Secretary.
RECORD DATE; VOTING POWER
All voting rights for the Chartwell special meeting are vested exclusively
in the Chartwell stockholders, who are entitled to one vote per share. Only
Chartwell stockholders of record at the close of business on the record date,
which is September 1, 1999, are entitled to vote at the Chartwell special
meeting. Chartwell stockholders are not entitled to appraisal rights in
connection with the merger. See "Comparison of Rights of Trenwick Stockholders
and Chartwell Stockholders -- Appraisal Rights."
QUORUM; VOTE REQUIRED
Delaware corporation law, the Chartwell Restated Certificate of
Incorporation, the Chartwell Amended and Restated By-Laws and the Exchange Act
contain requirements governing the actions of Chartwell stockholders at the
Chartwell special meeting. According to Delaware corporation law and the
Chartwell Amended and Restated By-Laws, holders of a majority of the outstanding
shares of Chartwell common stock entitled to vote as of the record date must be
present, either in person or by proxy, at the Chartwell special meeting to
constitute a quorum. In general, broker non-votes and abstentions are counted as
present or represented for the purposes of determining a quorum for the
Chartwell special meeting.
Adoption of the merger agreement and approval of the merger require the
affirmative vote by the holders of a majority of the shares of Chartwell common
stock outstanding as of the record date. Under NYSE rules, brokers and nominees
may not exercise their voting discretion on the proposal to adopt the merger
agreement and approve the merger. For this reason, without specific instructions
from the beneficial owner of shares of Chartwell common stock, brokers and
nominees may not vote such shares on the proposal. Because the affirmative vote
of the holders of a majority of the shares of Chartwell common stock outstanding
as of the record date is required for adoption of the merger agreement and
approval of the merger, an abstention or a broker non-vote will have the effect
of a vote against the merger agreement and the merger. Therefore, the Chartwell
board of directors urges the Chartwell stockholders to complete, date and sign
the accompanying proxy and return it promptly in the enclosed, postage-paid
envelope.
Additional information with respect to beneficial ownership of Chartwell
common stock by persons and entities owning more than 5% of Chartwell common
stock and more detailed information with respect to beneficial ownership of
Chartwell common stock by directors and executive officers of Chartwell is set
forth in "Other Information for the Chartwell Special Meeting -- Security
Ownership of Certain Beneficial Owners and Management."
As of the date of this document, Trenwick has no interest, direct or
indirect, in any securities of Chartwell, except that Trenwick has entered into
the stock option agreement (see "Related Agreements and Transactions -- Stock
Option Agreement"), and except that Trenwick owns one share of Chartwell common
stock.
EXPENSES OF SOLICITATION
Chartwell will pay the expenses of the solicitation of proxies with respect
to the Chartwell special meeting. In addition to solicitation by mail, Chartwell
will make arrangements with brokers and other custodians, nominees and
fiduciaries to send proxy materials to their principals and will, upon request,
reimburse them for reasonable expenses of so doing. Chartwell's officers and
regular employees may solicit proxies from some Chartwell stockholders by
telephone, facsimile, or in person after the initial solicitation.
80
<PAGE> 91
In addition, Chartwell has retained Corporate Investor Communications, Inc. to
assist Chartwell in the solicitation of proxies. Corporate Investor
Communications may contact Chartwell stockholders by mail, telephone, facsimile,
telegraph and personal interviews and may request brokers, dealers and other
nominee stockholders to forward materials to the beneficial owners of shares of
Chartwell common stock. Corporate Investor Communications will receive
reasonable and customary compensation for its services (estimated at $6,000).
Chartwell will also reimburse Corporate Investor Communications for certain
reasonable out-of-pocket expenses and will indemnify Corporate Investor
Communications against certain liabilities and expenses in connection with its
solicitation activities on behalf of Chartwell, including certain liabilities
under the federal securities laws.
MISCELLANEOUS
We do not expect that matters not referred to in this document will be
presented for action at the Chartwell special meeting. If any other matters are
properly brought before the Chartwell special meeting, the persons named on the
accompanying proxy card will vote the shares represented by the proxy upon such
matters in their discretion. Such other matters could include, without
limitation, a motion to adjourn or postpone such Chartwell special meeting to
another time and/or place for the purpose of, among other things, permitting
dissemination of information regarding material developments relating to the
merger agreement and the merger, or soliciting additional proxies in favor of
the adoption of the merger agreement and approval of the merger. However, if
Chartwell proposes to adjourn or postpone the Chartwell special meeting for the
purpose of soliciting additional votes in favor of the merger agreement and the
merger, and seeks a vote of Chartwell stockholders on such proposal, no proxy
that is voted against the merger agreement and merger on the proxy card (or on
which a Chartwell stockholder elects to abstain on such matter) will be voted in
favor of any adjournment or postponement for the purpose of soliciting
additional proxies. Any other proxy will be deemed to have voted "FOR" such an
adjournment or postponement proposal if such a proposal is made. If the
Chartwell special meeting is reconvened, all proxies will be voted in the same
manner as they would have been voted at the original meeting, except for proxies
that are effectively revoked or withdrawn before the reconvened meeting.
CHARTWELL STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS. PROMPTLY AFTER THE COMPLETION OF THE MERGER, CHARTWELL STOCKHOLDERS
WILL RECEIVE A TRANSMITTAL FORM WITH INSTRUCTIONS ON HOW TO EXCHANGE THEIR STOCK
CERTIFICATES FOR CERTIFICATES OF TRENWICK COMMON STOCK.
81
<PAGE> 92
OTHER INFORMATION FOR THE CHARTWELL SPECIAL MEETING --
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to beneficial
ownership of Chartwell's outstanding common stock based on publicly available
information, as of the record date of the special meeting, by: (1) each person
who is the beneficial owner of more than 5% of any class of Chartwell's
outstanding common stock; (ii) all directors of Chartwell; (iii) the Chief
Executive Officer of Chartwell and the four other most highly compensated
executive officers of Chartwell in 1998; and (iv) all directors and executive
officers of Chartwell as a group.
<TABLE>
<CAPTION>
PERCENT OF
NAME OF BENEFICIAL OWNER SHARES STOCK
------------------------ --------- ----------
<S> <C> <C>
Wand/Chartwell Investments L.P.(1).......................... 868,611 8.8%
c/o Wand Partners, Inc.
30 Rockefeller Plaza, Suite 3226
New York, NY 10012
Stuart Smith Richardson(2).................................. 659,584 6.8%
32 Bibbins Road
Easton, CT 06612
Oppenheimer Capital......................................... 527,865 5.5%
Oppenheimer Tower
World Financial Center
New York, NY 10281
Waddell & Reed, Inc.(3)..................................... 500,000 5.2%
6300 Lamar Avenue
Shawnee Mission, KS 66202
Richard E. Cole(4).......................................... 240,202 2.4%
Steven J. Bensinger(4)...................................... 173,523 1.8%
Jacques Q. Bonneau(4)....................................... 163,765 1.7%
Lunsford Richardson, Jr.(5)................................. 91,990 *
David J. Callard(1)......................................... 53,309 *
Charles E. Meyers(4)(6)..................................... 45,378 *
Robert M. DeMichele......................................... 22,035 *
John Sagan(7)............................................... 16,885 *
Stephen L. Green(8)......................................... 6,000 *
William R. Miller........................................... 5,500 *
Greg S. Feldman............................................. 4,000 *
Frank Grzelecki............................................. 4,000 *
Stephen L. Wenman........................................... 0 *
All executive officers and directors as a group (17
persons)(4)............................................... 1,642,361 15.8%
</TABLE>
- ---------------
(1) Wand/Chartwell Investments L.P. owns of record 637,926 shares of Chartwell's
common stock, and 46,608 shares of Chartwell's common stock are issuable to
Wand/Chartwell Investments upon the exercise of warrants owned by
Wand/Chartwell Investments. Wand Partners (Chartwell) L.P., the 1.0% general
partner of Wand/Chartwell Investments, owns of record 1,600 shares of
Chartwell's common stock, and 182,477 shares of Chartwell's common stock are
issuable to Wand Partners (Chartwell) upon the exercise of warrants held by
Wand Partners (Chartwell). Wand Partners (S.C. Inc.) Inc. is the 50% general
partner of Wand Partners (Chartwell). Mr. Callard, a director of Chartwell,
owns of record 34% of the outstanding shares of common stock of Wand
Partners (S.C. Inc.). As such, Mr. Callard shares with the other shareholder
of Wand Partners (S.C. Inc.), investment and voting power with respect to,
and may be deemed to be the beneficial owner of, the common stock and the
warrants owned by Wand/Chartwell Investments and Wand Partners (Chartwell).
Except for Mr. Callard's 2.1138% limited partnership interest in
Wand/Chartwell Investments and 34% common stock interest in Wand Partners
(S.C. Inc.), Mr. Callard disclaims
82
<PAGE> 93
beneficial ownership of the Chartwell's common stock and the warrants owned
by the Wand/Chartwell Investments and Wand Partners (Chartwell). Share
ownership for Mr. Callard shown in the chart represents his pro rata
ownership interest in Chartwell's common stock and the warrants held by the
Wand/Chartwell Investments and Wand Partners (Chartwell), respectively.
(2) These shares include shares of various trusts of which Mr. Richardson is a
trustee, and Mr. Richardson exercises shared voting and investment power
with respect to such shares. Mr. Richardson has sole voting and investment
power with respect to 253,886 shares of Chartwell's common stock. Mr.
Richardson is a cousin of Lunsford Richardson, Jr.
(3) Waddell & Reed Financial Services, Inc., Waddell & Reed, Inc. and Waddell &
Reed Investment Management Company, are parties to an agreement, dated
February 12, 1999, pursuant to which they agreed to file jointly all
required Schedule 13Gs and amendments thereto as required by Rule 13d-1 and
Rule 13d-2 promulgated under the Exchange Act relating to the aggregate
ownership by each of the foregoing parties of any voting equity security of
a class which is registered pursuant to Section 12 of the Exchange Act.
(4) Includes, with respect to each of the officers indicated, the following
numbers of options exercisable within 60 days of the date hereof: Mr. Cole
211,350; Mr. Bensinger 165,300; Mr. Bonneau 150,250 and Mr. Meyers 41,470.
With respect to all executive officers and directors as a group, includes an
aggregate of 737,310 options exercisable within 60 days of the date hereof,
4,481 warrants held by Mr. Sagan and 656,584 shares held by Stuart Smith
Richardson, a director of Chartwell who is a trustee and exercises shared
voting and investment power with respect to such shares. See footnote 2
above.
(5) Mr. Richardson may be deemed to be a control person of Chartwell (other than
solely by reason of being a director of Chartwell) according to the rules of
the SEC. Mr. Richardson is a cousin of Stuart Smith Richardson.
(6) Excludes 8,850 shares of Chartwell's common stock owned by Mr. Meyers'
spouse, as to which Mr. Meyers disclaims beneficial ownership.
(7) Includes 4,481 shares of the Chartwell's common stock issuable upon the
exercise of the warrants owned by Mr. Sagan, a director of Chartwell.
(8) Mr. Green, a director of Chartwell, is a general partner of Canaan Partners,
the ultimate general partner of Canaan Capital Offshore Limited Partnership
C.V. and Canaan Capital Limited Partnership. 178,127 shares of Chartwell's
common stock and warrants to purchase 11,112 additional shares are owned of
record by Canaan Capital Offshore Limited, and 21,343 shares of Chartwell's
common stock and warrants to purchase 1,331 additional shares are owned of
record by Canaan Capital Limited Partnership. Mr. Green disclaims beneficial
ownership of Chartwell's common stock and the warrants owned by Canaan
Capital Offshore Limited and Canaan Capital Limited Partnership. Share
ownership for Mr. Green shown in the chart excludes the shares of
Chartwell's common stock and warrants owned by Canaan Capital Offshore
Limited and Canaan Capital Limited Partnership.
83
<PAGE> 94
INFORMATION REGARDING TRENWICK
Trenwick Group Inc. is a holding company which owns and operates two
principal companies, Trenwick America Reinsurance Corporation and Trenwick
International Limited. Trenwick America Re provided 68% of Trenwick's 1998 total
net premiums (that is, premiums minus premiums paid or payable for Trenwick's
own reinsurance coverage), and Trenwick International provided the remaining
32%.
Trenwick America Re, located in Stamford, Connecticut, provides reinsurance
to U.S. insurance companies for property and casualty risks. Its statutory
surplus was $312.1 million as of June 30, 1999. Trenwick America Re provides its
reinsurance coverage in two ways: by treaty reinsurance, where it agrees in
advance to take a specific share of part of an insurance company's business, and
by facultative reinsurance, where it accepts specific individual risks from an
insurance company on a case by case basis. In 1998, 91% of Trenwick America Re's
business was casualty reinsurance (89% provided by treaties and 2% provided on a
facultative basis) and the remaining 9% was property reinsurance. As a broker
market reinsurer, Trenwick America Re obtains substantially all of its business
through brokers who represent insurance companies. Trenwick America Re is
licensed or otherwise authorized to do business in all fifty states and the
District of Columbia.
Trenwick International, which Trenwick acquired in February 1998, is
headquartered in London, England. Trenwick International is authorized to write
insurance in over 30 countries and participates in the London market for
worldwide reinsurance. Its business, which is conducted outside of the United
States, consists principally of direct insurance (provided to policyholders) and
facultative reinsurance (provided to insurance companies). It also provides
insurance companies with property and casualty reinsurance through treaties. A
recently-opened branch office in Paris, France specializes in facultative
property reinsurance. Trenwick International obtains its business through
brokers who represent policyholders, in the case of direct insurance, and
insurance companies, in the case of reinsurance. Its statutory surplus was
$127.8 million as of June 30, 1999.
Trenwick America Re is rated A+ (Superior) by A.M. Best Company, an
independent insurance rating organization. A.M. Best rates Trenwick
International A (Excellent). On June 22, 1999, in response to the announcement
of the merger, A.M. Best placed these ratings under review pending the
completion of the merger and discussions with Trenwick's management regarding
integration plans, pro forma financials and strategic business plans. Standard &
Poor's Rating Services rates Trenwick America Re's financial strength as A+
(Good) and Trenwick International's financial strength as A+ (Good). Standard &
Poor's also rates Trenwick's counterparty credit and senior debt as BBB+. On
June 22, 1999, in response to the announcement of the merger, Standard & Poor's
placed these ratings on "CreditWatch" with negative implications, pending
meetings (expected to occur before year-end) with Trenwick's management
regarding integration plans, long-term strategy and capital adequacy of the
combined operations of Trenwick and Chartwell. On June 22, 1999, Moody's
Investors Service confirmed its previously issued Baa2 rating for Trenwick's
senior debt and revised its rating outlook to "positive." On the same day,
Moody's assigned an A3 insurance financial strength rating to Trenwick America
Re. Except for the ratings which specifically address Trenwick's senior debt,
these ratings are issued to assist insurance companies and policyholders, not to
protect investors.
Trenwick's principal executive office is located at One Canterbury Green,
Stamford, Connecticut 06901, and its telephone number is (203) 353-5500.
84
<PAGE> 95
INFORMATION REGARDING CHARTWELL
Chartwell is an insurance holding company with underwriting and service
operations which conducts its business in the United States and in the Lloyd's
market through its principal operating subsidiaries, Chartwell Reinsurance
Company, The Insurance Corporation of New York, and Chartwell Managing Agents
Limited.
Chartwell Reinsurance is a broker market reinsurer with $303.9 million of
statutory surplus (as of June 30, 1999) which underwrites treaty reinsurance for
casualty, property, marine and aviation risks. The Insurance Corporation of New
York is a primary insurance company with $138.4 million of policyholders'
surplus (as of June 30, 1999) that underwrites specialty property and casualty
insurance programs. Chartwell Reinsurance and The Insurance Corporation of New
York are each licensed or authorized to transact business in 49 states and the
District of Columbia. The Insurance Corporation of New York is also approved to
transact business in Canada. Chartwell Managing Agents is the 12th largest
managing agency at Lloyd's, managing seven Lloyd's syndicates with total
underwriting capacity of approximately L300 million ($500 million) for the 1999
year of account. Approximately 46% of Chartwell Managing Agents' syndicates'
1999 capacity is supplied by Chartwell, and approximately 65% of Chartwell
Managing Agents' 1999 premium volume is derived from non-U.S. sources.
A.M. Best rates Chartwell Reinsurance A (Excellent) and rates both The
Insurance Corporation of New York and Dakota Specialty Insurance Company, its
surplus lines subsidiary, A- (Excellent). On June 22, 1999, in response to the
announcement of the merger, A.M. Best placed these ratings under review with
developing implications. This status reflects the uncertainties and potential
business disruption associated with the transaction, including business overlap
and management retention. All three companies are assigned an A- financial
strength rating by Standard & Poor's. On June 23, 1999, in response to the
announcement of the merger, Standard & Poor's placed these ratings on
"CreditWatch" with positive implications. At the same time, Standard & Poor's
also placed its BBB- counterparty credit and senior debt ratings for Chartwell
on "CreditWatch" with positive implications. On June 22, 1999, Moody's placed
Chartwell's Ba1 senior debt rating under review for possible upgrade. All of
Chartwell Managing Agents' syndicates enjoy the benefit of the ratings of
Lloyd's, which is rated "A" (Excellent) by A.M. Best and has an A+ financial
strength rating from Standard & Poor's. Except for the ratings which
specifically address Chartwell's senior debt, these ratings are issued to assist
insurance companies and policyholders, not to protect investors.
Chartwell's principal executive office is located at Four Stamford Plaza,
107 Elm Street, Stamford Connecticut 06902 and its telephone number is (203)
705-2500.
RECENT DEVELOPMENTS
Chartwell expects to recognize in the third quarter of 1999 a charge to
after tax operating income of approximately $13 million relating to its
participation on syndicates managed by Chartwell Managing Agents, its United
Kingdom subsidiary. The charge is principally attributable to the recognition of
additional adverse loss development in respect of automobile insurance
previously written through a Lloyd's syndicate formerly managed by Chartwell
Managing Agents and adjustments to expected ultimate underwriting results and
investment returns on other syndicates managed by Chartwell Managing Agents.
Chartwell Managing Agents sold the Lloyd's syndicate which wrote the automobile
insurance in October of 1998 and is currently seeking to purchase reinsurance to
terminate its ongoing liabilities with respect to such syndicate.
In recognition of the recent adverse developments emanating from its London
operations and certain other factors, Chartwell is also examining its
consolidated reserves for loss and loss adjustment expenses, which could result
in an increase in such reserves. The examination will take into account the
effect of the anticipated changes in Chartwell's reinsurance programs and other
pertinent facts. Chartwell management normally considers many factors when
setting reserves, including current legal interpretations of coverage and
liability, economic conditions and internal methodologies which analyze
Chartwell's experience with
85
<PAGE> 96
similar cases, information from ceding companies and historical trends, such as
reserving patterns, loss payments, pending levels of unpaid claims and product
mix. Any adjustment to Chartwell's consolidated reserves resulting from such
review would be reflected in, and could have a material effect on, the results
of operations in the period in which such adjustments become known.
Chartwell has applied to Lloyd's for consent to implement the merger of its
non-life syndicates 544, 741 and 2741 into Chartwell Syndicate 839 effective
January 1, 2000. This application has been made on the basis of overwhelming
support for the syndicate merger from the capital providers of these syndicates.
Chartwell did not receive the requisite support from the capital providers of
its aviation Syndicate 270 to include it in the merger. In response to this
development and, as disclosed in the merger proposals sent to capital providers,
Chartwell has applied to Lloyd's for consent to include the staff of the
aviation syndicate in Syndicate 839 and to bifurcate the aviation business
written from January 1, 2000 between Syndicate 839 and the capital providers
remaining in Syndicate 270.
Chartwell also announced on July 30, 1999 that it reached an agreement in
principle for Greenwich Insurance Holdings plc to acquire the right to manage
Syndicates 947 and 994. The transaction is subject to preparation and execution
of definitive documentation, the approval of Lloyd's and consultation with the
Syndicates' capital providers. Chartwell intends to cease its participation in
these Syndicates commencing with the 2000 year of account.
86
<PAGE> 97
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma combined consolidated financial
statements are based on the historical consolidated financial statements of
Trenwick and Chartwell, combined and adjusted to give effect to the merger,
using the purchase method of accounting. Certain reclassifications have been
made to the historical financial statements to conform with this pro forma
presentation. You should read these statements in conjunction with those
historical financial statements and the notes thereto, which are incorporated by
reference in this document.
The unaudited pro forma combined consolidated statements of income for the
year ended December 31, 1998 and for the six months ended June 30, 1999 present
the results for Trenwick and Chartwell as if the merger had occurred on January
1, 1998. The accompanying unaudited pro forma combined consolidated balance
sheet as of June 30, 1999 gives effect to the merger as of that date.
The pro forma adjustments are based upon preliminary estimates, information
currently available and certain assumptions that management of Trenwick believes
are reasonable under the circumstances. Trenwick's actual consolidated financial
statements will reflect the effects of the merger on and after the effective
time of the merger rather than the dates indicated above. The unaudited pro
forma combined consolidated financial statements do not purport to represent
what the combined results of operations or financial condition actually would
have been had the merger occurred on the assumed dates, nor do they purport to
project the combined results of operations and financial position for any future
period. Operating expense savings that may result from the merger have not been
reflected in these pro forma financials.
At the effective time of the merger, each issued and outstanding share of
Chartwell's common stock (and each Sharesave option to acquire a share of
Chartwell common stock under Chartwell's stock purchase plan for its U.K.
employees) will be converted into the right to receive 0.825 of a share of
Trenwick common stock. The pro forma combined consolidated financial statements
assume that all shares of Chartwell common stock (and each of the Sharesave
options to be converted) were converted into shares of Trenwick common stock at
the fixed exchange ratio of 0.825. The total value of the consideration for pro
forma purposes was determined using the average closing price of Trenwick common
stock on NASDAQ for the five day trading period ended June 25, 1999.
Described below are the preliminary adjustments to record the assets and
liabilities at fair value and allocate the excess purchase price over fair value
of net assets acquired. Total consideration has been allocated based on
management's best estimate. All amounts are in thousands, except per share
amounts.
<TABLE>
<S> <C>
Chartwell's outstanding common shares....................... 9,642
Chartwell's Sharesave options to be exchanged for common
shares.................................................... 19
--------
Total Chartwell common shares............................... 9,661
Exchange ratio for the conversion of shares................. 0.825
Trenwick common shares issued in exchange for Chartwell
common shares............................................. 7,970
Trenwick's average price per common share................... $ 26.29
Total consideration for Chartwell's common shares........... $209,531
Total consideration for Chartwell's common stock options.... $ 8,314(U)
Acquisition Costs........................................... $ 8,200(P)
--------
Total Purchase price........................................ $226,045
Less:
Net book value of Chartwell's net assets.................... $282,864
Adjustment to fair value debt securities held to maturity... 495(I)
Adjustment to retained earnings to reflect the net effect of
Chartwell's commutation of its aggregate excess of loss
reinsurance treaties...................................... (29,107)(J)
Adjustment to retained earnings to reflect the net effect of
the new reinsurance agreement............................. (36,400)(N)
Elimination of goodwill recorded in the historical balance
sheet..................................................... (59,146)(L)
Estimated net deferred income taxes related to purchase
price adjustments......................................... (4,051)(M)
Adjustment to eliminate other intangible assets, primarily
unamortized debt issuance costs........................... (6,048)(L)
Adjustment to record fair value of debt..................... (1,904)(O)
Adjustment to record estimated severance costs.............. (6,800)(Q)
--------
Fair value of Chartwell's net assets........................ 139,903
--------
Goodwill.................................................... $ 86,142(K)
========
</TABLE>
87
<PAGE> 98
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TRENWICK CHARTWELL PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENT PRO FORMA
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
UNDERWRITING OPERATIONS AND CORPORATE
REVENUES
Net premiums earned....................... $245,561 $229,504 $475,065
Net investment income..................... 56,316 47,777 $ (214)(A) 103,879
Net realized investment gains............. 9,016 29 9,045
Other income.............................. 421 -- 421
-------- -------- ------- --------
Total revenues............................ 311,314 277,310 (214) 588,410
-------- -------- ------- --------
EXPENSES
Claims and claims expenses incurred....... 153,135 135,265 288,400
Policy acquisition costs.................. 74,197 61,564 135,761
Underwriting expenses..................... 23,795 23,989 47,784
General and administrative expenses....... 3,461 2,988 6,449
Interest and amortization expense......... 3,987 13,499 (321)(B) 19,497
(1,037)(C)
3,446(D)
(77)(E)
Minority interest in subsidiary trust..... 9,702 -- 9,702
-------- -------- ------- --------
Total expenses............................ 268,277 237,305 2,011 507,593
-------- -------- ------- --------
Income before taxes -- underwriting
operations and corporate................ 43,037 40,005 (2,225) 80,817
-------- -------- ------- --------
SERVICE OPERATIONS
REVENUES
Service and other revenue................. -- 14,289 14,289
Equity in net earnings of investees....... -- 5,327 5,327
Net investment income..................... -- 1,092 1,092
-------- -------- ------- --------
Total revenues............................ -- 20,708 -- 20,708
-------- -------- ------- --------
EXPENSES
Overhead expenses......................... -- 12,888 12,888
Amortization of goodwill.................. -- 2,298 (2,298)(E) --
-------- -------- ------- --------
Total expenses............................ -- 15,186 (2,298) 12,888
-------- -------- ------- --------
Income before income taxes -- service
operations.............................. -- 5,522 2,298 7,820
-------- -------- ------- --------
Consolidated income before taxes.......... 43,037 45,527 73 88,637
Income taxes.............................. 8,245 15,711 400(F) 24,356
-------- -------- ------- --------
Net income................................ $ 34,792 $ 29,816 $ (327) $ 64,281
======== ======== ======= ========
Basic Earnings Per Share -- Net Income.... $ 2.99 $ 3.10 $ 3.28
======== ======== ========
Diluted Earnings Per Share -- Net
Income.................................. $ 2.95 $ 3.00 $ 3.22
======== ======== ========
</TABLE>
See the accompanying notes to the unaudited pro forma combined consolidated
financial statements.
88
<PAGE> 99
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TRENWICK CHARTWELL PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENT PRO FORMA
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
UNDERWRITING OPERATIONS
AND CORPORATE
REVENUES
Net premiums earned $125,039 $161,994 $287,033
Net investment income 27,140 26,056 $(107)(A) 53,089
Net realized investment gains 3,029 (330) 2,699
Other income 113 -- 113
-------- -------- ----- --------
Total revenues 155,321 187,720 (107) 342,934
-------- -------- ----- --------
EXPENSES
Claims and claims expenses incurred 81,324 109,268 190,592
Policy acquisition costs 34,453 45,437 79,890
Underwriting expenses 13,036 14,247 27,283
General and administrative expenses 2,162 1,350 3,512
Interest and amortization expense 2,739 7,414 (161)(B) 10,494
(533)(C)
1,723(D)
(688)(E)
Minority interest in subsidiary trust 4,851 -- 4,851
-------- -------- ----- --------
Total expenses 138,565 177,716 341 316,622
-------- -------- ----- --------
Income before taxes -- underwriting operations
and corporate 16,756 10,004 (448) 26,312
-------- -------- ----- --------
SERVICE OPERATIONS
REVENUES
Service and other revenue -- 5,317 5,317
Equity in net earnings of investees -- 700 700
Net investment income -- 409 409
-------- -------- ----- --------
Total revenues -- 6,426 -- 6,426
-------- -------- ----- --------
EXPENSES
Other expenses -- 5,091 5,091
Amortization of goodwill -- 925 (925)(E) --
-------- -------- ----- --------
Total expenses -- 6,016 (925) 5,091
-------- -------- ----- --------
Income before income taxes -- service
operations -- 410 925 1,335
-------- -------- ----- --------
Consolidated income before taxes 16,756 10,414 477 27,647
Income taxes 2,986 3,168 205(F) 6,359
-------- -------- ----- --------
Net income $ 13,770 $ 7,246 $ 272 $ 21,288
======== ======== ===== ========
Basic earnings per share -- net income $1.30 $0.75 $1.14
------ ------ ------
------ ------
Diluted earnings per share -- net income $1.28 $0.75 $1.13
------ ------ ------
------ ------ ------
</TABLE>
See the accompanying notes to the unaudited pro forma combined consolidated
financial statements.
89
<PAGE> 100
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TRENWICK CHARTWELL PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENT PRO FORMA
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Debt securities available for sale...... $ 876,747 $ 610,273 $ 2,290(G) $1,489,310
Equity securities available for sale.... 60,967 -- 14,782(H) 75,749
Debt securities held to maturity........ -- 26,454 495(I) 26,949
Other investments....................... -- 45,690 (14,782)(H) 28,618
(2,290)(G)
Investments held by managed
syndicates............................ -- 113,146 113,146
Cash and cash equivalents............... 19,463 50,758 70,221
Cash and cash equivalents held by
managed syndicates.................... -- 9,428 9,428
---------- ---------- --------- ----------
Total investments and cash.............. 957,177 855,749 495 1,813,421
Accrued investment income............... 16,001 10,296 26,297
Receivables in process of collection.... 152,777 133,688 286,465
Reinsurance recoverable balances........ 277,125 337,933 (102,485)(J) 512,573
Prepaid reinsurance premiums............ 22,605 53,964 (7,062)(J) 69,507
Goodwill................................ 1,562 59,146 86,142(K) 87,704
(59,146)(L)
Deferred policy acquisition costs....... 44,179 23,869 1,689(J) 69,737
Net deferred income taxes............... 20,826 34,602 7,077(J) 58,454
(4,051)(M)
Deposits................................ -- 20,385 20,385
Other assets............................ 19,999 68,767 (6,048)(L) 82,718
---------- ---------- --------- ----------
Total assets............................ $1,512,251 $1,598,399 $ (83,389) $3,027,261
========== ========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unpaid claims and claims expenses....... $ 666,101 $ 936,243 $1,602,344
Other reinsurance balances payable...... 127,194 72,050 $ 56,000(N) 192,166
(63,078)(J)
Unearned premium income................. 181,658 120,340 301,998
Contingent interest notes............... -- 33,414 33,414
6.7% senior notes due 2003.............. 75,000 75,000
Long term debt.......................... -- 100,816 1,904(O) 102,720
Accrued expenses and other
liabilities........................... 29,710 52,642 8,200(P) 69,156
(19,600)(N)
(8,596)(J)
6,800(Q)
---------- ---------- --------- ----------
Total liabilities....................... 1,079,663 1,315,505 (18,370) 2,376,798
---------- ---------- --------- ----------
Company-obligated mandatorily redeemable
preferred capital securities of
subsidiary trust holding solely junior
subordinated debentures of Trenwick
Group Inc............................. 110,000 -- 110,000
Minority interest....................... -- 30 30
COMMON STOCKHOLDERS' EQUITY
Common stock............................ 1,063 96 (96)(R) 1,860
797(S)
Additional paid in capital.............. 111,747 212,433 (212,433)(R) 328,795
208,734(T)
8,314(U)
Deferred compensation under stock award
plan.................................. (4,297) -- (4,297)
Retained earnings....................... 214,532 74,190 (74,190)(R) 214,532
Accumulated other comprehensive
income................................ (457) (3,855) 3,855(R) (457)
---------- ---------- --------- ----------
Total common stockholders' equity....... 322,588 282,864 (65,019) 540,433
---------- ---------- --------- ----------
Total liabilities and stockholders'
equity................................ $1,512,251 $1,598,399 $ (83,389) $3,027,261
========== ========== ========= ==========
</TABLE>
See the accompanying notes to the unaudited pro forma combined consolidated
financial statements.
90
<PAGE> 101
NOTES TO UNAUDITED PRO FORMA COMBINED
CONSOLIDATED FINANCIAL STATEMENTS
The purchase accounting and pro forma adjustments related to the unaudited
pro forma combined consolidated statements of income and balance sheet are
described below. All amounts are in thousands, except per share amounts.
(A) Reduction of interest income due to the amortization of purchase
accounting adjustments and elimination of historical amortization
related to Chartwell's investments in debt securities.
(B) Amortization of purchase accounting adjustments related to
Chartwell's outstanding long-term debt.
(C) Elimination of amortization of debt issuance costs included in
Chartwell's historical financial statements.
(D) Amortization of the excess of purchase price over the fair value of
net assets acquired. The excess of purchase price over fair value of
net assets acquired will be amortized ratably over 25 years.
(E) Elimination of goodwill amortization included in Chartwell's
historical financial statements.
(F) Adjustment to record the income tax effect of the purchase accounting
adjustments reflected in the income statements at the federal
statutory rate of 35%, excluding amortization of non-tax deductible
goodwill.
(G) Adjustment to reclassify certain debt securities recorded as "other
investments" in Chartwell's historical financial statements to conform
with the presentation in Trenwick's consolidated financial statements.
(H) Chartwell's investments in publicly traded common stocks are
classified as "other investments" in its historical financial
statements. These investments have been reclassified as available for
sale equity securities to conform with the presentation in Trenwick's
consolidated financial statements.
(I) Adjustment to record at fair value Chartwell's debt securities held
to maturity based on readily available market quotations.
(J) Commutation of Chartwell aggregate excess of loss reinsurance
treaties:
Chartwell has aggregate excess of loss reinsurance treaties in place
for 1997, 1998 and 1999. As a condition to entering into the
reinsurance agreement described in note N, Chartwell will be required
to commute these stop loss reinsurance agreements on or before the
merger date. The following adjustments reflect the impact of the
commutation as of June 30, 1999.
<TABLE>
<CAPTION>
DR. (CR.)
---------
<S> <C>
Reinsurance recoverable balances............................ $(102,485)
Other reinsurance balances payable.......................... 63,078
Deferred acquisition costs.................................. 1,689
Prepaid reinsurance premiums................................ (7,062)
Net deferred income taxes................................... 7,077
Tax benefit................................................. 8,596
---------
Loss on commutation......................................... $ 29,107
=========
</TABLE>
The loss on commutation of the aggregate excess of loss reinsurance
treaties is a non-recurring charge and as such is not reflected in the
unaudited pro forma combined consolidated statements of income. Had the
aggregate excess of loss reinsurance treaties not been in place and had
Chartwell not purchased any additional reinsurance coverages, combined
ratios of
91
<PAGE> 102
Chartwell for the periods ended December 31, 1998 and June 30, 1999
would have been 105.7% and 114.5%, respectively, compared to reported
combined ratios of 96.2% and 104.3% for the same periods.
(K) Excess of the purchase price over the fair value of net assets
acquired.
(L) Elimination of goodwill and other intangible assets, primarily
unamortized debt issuance costs, recorded in Chartwell's historical
financial statements.
(M) Adjustment to establish deferred taxes on the pro forma adjustments to
the balance sheet, net of valuation allowance.
(N) As a condition to the merger agreement, Trenwick will be indemnified
and guaranteed, effective upon completion of the merger, against
adverse development in Chartwell's business and such indemnity and
guarantee will be accomplished through a reinsurance agreement which
is an express condition to the completion of the merger. The premiums
payable under this agreement will be $56,000. The current tax benefit
as a result of the agreement will be $19,600. The effect of this
agreement is a non-recurring charge and as such is not reflected in
the unaudited pro forma combined consolidated statements of income.
Trenwick intends to apply the provisions of the FASB's Emerging Issues
Task Force Topic D-54 to account for future adverse development, if
any, covered by the agreement.
(O) Adjustment to fair value Chartwell's consolidated long-term debt,
which consists primarily of publicly traded senior notes and bank
loans. The fair value of the senior notes is based on readily
available market quotations. The fair value of the loans is based on
an independent valuation provided by the lending bank.
(P) Adjustment to record Trenwick's merger-related costs consisting of
attorneys' fees, financial advisor fees and accountants' fees.
(Q) Adjustment to record Chartwell's estimated severance costs that have
been identified and are expected to be incurred within one year
following the consummation of the merger.
(R) Elimination of Chartwell's historical stockholders' equity accounts.
(S) Issuance of 7,970 shares of Trenwick common stock at a par value of
$.10 per share (7,970 X $.10 = $797).
(T) Consideration paid through the issuance of 7,970 Trenwick shares in
exchange for 9,642 Chartwell shares and 19 Sharesave options
($209,531), less the par value of the Trenwick shares issued ($797).
(U) Fair value of Chartwell outstanding stock options that will be assumed
by Trenwick upon completion of the merger in accordance with the terms
of the merger agreement. Certain of Chartwell's stock option plans
stipulate that the outstanding options will become fully vested once
the merger is approved by Chartwell's stockholders. The fair value was
calculated using the Black Scholes option pricing model.
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<PAGE> 103
DESCRIPTION OF TRENWICK CAPITAL STOCK
The following description does not purport to be complete and is qualified
in its entirety by reference to Trenwick's Restated Certificate of Incorporation
and By-Laws and the Delaware corporation law.
GENERAL
The authorized capital stock of Trenwick consists of 30,000,000 shares of
Trenwick common stock and 2,000,000 shares of preferred stock, par value $.10
per share. As of the date of this document, there were 10,630,510 shares of
Trenwick common stock outstanding, and no other shares of capital stock were
issued and outstanding.
TRENWICK COMMON STOCK
Each holder of Trenwick common stock is entitled to one vote for each share
of common stock on all matters to be voted on and is not entitled to cumulative
voting for the election of directors or to preemptive or preferential rights.
Subject to provisions of law and the rights of the preferred stock having
preference over the common stock then outstanding, dividends may be paid on the
common stock at such times and in such amounts as the board of directors shall
determine. Upon liquidation, dissolution or winding up of Trenwick and subject
to the preferential amounts to be distributed to the holders of preferred stock
having a preference over the common stock, the holders of the common stock shall
be entitled to receive all remaining assets of Trenwick available for
distribution to its stockholders ratably in proportion to the number of shares
of common stock held by them respectively.
TRENWICK PREFERRED STOCK
The Trenwick board of directors is expressly authorized to adopt, from time
to time, a resolution or resolutions providing for the issue of preferred stock.
For each series of Trenwick preferred stock it establishes, the Trenwick board
of directors has the authority to determine, the designation, number, voting
powers (if any), preferences, special rights, qualifications, limitations or
restrictions of the series, the dividend rate, conditions of payment and date of
payment of dividends and whether the dividends will be cumulative or
noncumulative. The Trenwick board of directors must also determine whether the
preferred stock will be subject to redemption, the terms of the redemption, the
terms and amount of the sinking or similar fund, whether the shares will be
convertible into or exchangeable for shares of capital stock or other securities
of Trenwick, and if so, the times, prices, rates, adjustments and other terms
and conditions of such conversion or exchange, the voting rights (if any), the
restrictions and condition, if any, upon the issue or reissue of any additional
preferred stock of equal or preferential ranking, the rights of holders of the
shares of such series upon the dissolution of Trenwick or distribution of the
assets of Trenwick and any other relative rights, preferences, or limitations of
such series of preferred stock, subject to applicable law. In connection with
its Stockholder Rights Plan adopted on September 24, 1997, Trenwick's board of
directors designated 200,000 shares of Series B Junior Participating Preferred
Stock, none of which is currently outstanding.
COMPARISON OF RIGHTS OF TRENWICK STOCKHOLDERS
AND CHARTWELL STOCKHOLDERS
Trenwick is incorporated under the laws of the State of Delaware. Chartwell
also is incorporated under the laws of the State of Delaware. The rights of
holders of shares of Chartwell common stock currently are governed by Delaware
law and by Chartwell's Restated Certificate of Incorporation and Amended and
Restated By-Laws. When the shares of Chartwell common stock are converted into
Trenwick common stock in the merger, the holders of Chartwell common stock will
become Trenwick stockholders, and their rights as such will be governed by
Delaware corporation law and by Trenwick's Restated Certificate of Incorporation
and By-Laws.
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The following summary is not intended to be complete and is qualified in
its entirety by reference to the Delaware corporation law, Trenwick's Restated
Certificate of Incorporation, Trenwick's By-Laws, Chartwell's Restated
Certificate of Incorporation and Chartwell's Amended and Restated By-Laws, as
appropriate. The identification of specific differences is not meant to indicate
that other equally and more significant differences do not exist. Copies of
Trenwick's Restated Certificate of Incorporation and By-Laws and Chartwell's
Restated Certificate of Incorporation and Amended and Restated By-Laws are
incorporated herein by reference and will be sent to Chartwell stockholders upon
request. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
TRENWICK CHARTWELL
<S> <C>
AUTHORIZED STOCK
The Trenwick Restated Certificate of The Chartwell Restated Certificate of
Incorporation provides for authorized Incorporation provides for authorized
capital stock consisting of 30,000,000 capital stock consisting of 20,000,000
shares of Trenwick common stock, par value shares of Chartwell common stock, $.01 par
$.10 per share, and 2,000,000 shares of value per share and 5,000,000 shares of
preferred stock, par value $.10 per share. preferred stock, par value $1.00 per
share.
BOARD OF DIRECTORS
ELECTION OF BOARD OF DIRECTORS
The Trenwick By-Laws provide that The Chartwell Amended and Restated By-Laws
directors are elected at annual meetings provide that directors are elected by a
and under Delaware law directors are plurality of votes cast at annual meetings
elected by a plurality of votes cast at an at which a quorum is present. Each
annual meeting at which a quorum is director holds office until the annual
present. Each director holds office until meeting in the year in which his term
the annual meeting in the year in which expires and until his successor is duly
his term expires and until his successor elected and qualified or until the
is duly elected and qualified or until the director's earlier resignation or removal.
director's earlier resignation or removal.
NUMBER OF DIRECTORS
The Trenwick By-Laws fix the number of The Chartwell Restated Certificate of
directors at not less than three nor more Incorporation provides that the number of
than 20. The exact number of directors directors shall be not less than one nor
will be determined from time to time by more than 14 directors. The Chartwell
resolution adopted by affirmative vote of board of directors currently consists of
at least a majority of the whole board of 12 directors.
directors. Currently, there are eight
directors. After the merger, the Trenwick
board of directors will consist of the
eight current Trenwick directors and four
directors who will be designated by
Chartwell.
REMOVAL
Any director may be removed from office, Any director may be removed from office,
with or without cause, by the affirmative with cause, by the affirmative vote of the
vote of the holders of 80% of the holders of a majority of the outstanding
outstanding shares of voting stock. shares of voting stock.
</TABLE>
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<TABLE>
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TRENWICK CHARTWELL
<S> <C>
COMMITTEES
The board of directors may, by a The board of directors may, by a
resolution passed by a majority of the resolution passed by a majority of the
board of directors, designate one or more board of directors, designate one or more
committees. Each committee consists of two committees. Each committee consists of one
or more directors. To the extent provided or more directors. To the extent provided
in the resolution and subject to the in the resolution and subject to the
limitations imposed by Delaware limitations imposed by Delaware
corporation law, committees have and may corporation law, committees have and may
exercise the powers and authority of the exercise the powers and authority of the
full board of directors. full board of directors.
STOCKHOLDERS
SPECIAL MEETINGS OF STOCKHOLDERS
The Chairman or President of Trenwick may The Chartwell board of directors, Chairman
call special meetings of stockholders or President may call special meetings of
pursuant to a resolution approved by a stockholders at any time. No other persons
majority of the board of directors. The may call special meetings of stockholders.
stockholders are not entitled to request
special meetings of stockholders.
</TABLE>
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<TABLE>
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TRENWICK CHARTWELL
<S> <C>
STOCKHOLDER PROPOSALS AND NOMINATIONS
Stockholders of record may nominate A stockholder proposal or nomination will
persons for election to the board of be considered at an annual meeting of
directors with proper written notice to stockholders if the proposal or nomination
Trenwick. The notice must be sent 90 days is from a stockholder of record and if the
prior to an annual meeting or seven days stockholder forwards proper and timely
after notice of a special meeting. notice to Chartwell. Timely notice
Proper notice must contain: requires that the notice is delivered to
- the name and address of the stockholder the secretary of Chartwell not less than
and of the nominee(s); 60 days nor more than 90 days prior to the
- a representation that the stockholder is anniversary date of the last annual
a stockholder of record who is entitled meeting or, if the meeting is not called
to vote and intends to be represented at for a date that is within 30 days of the
the meeting in person or by proxy to anniversary date, the notice must be
make the nomination; provided not later than the close of
- a description of any arrangements or business on the 10th day following public
understandings between the stockholder disclosure of the date of the annual
and the nominee(s); meeting.
- other information regarding the Proper notice for a proposal or nomination
nominee(s) as would be required by the must contain:
SEC in a proxy statement; and - a brief description of the proposal(s)
- the consent of the nominee(s). or the name, age, occupation, and business
and residence address of the nominee(s);
- the name and address of the stockholder;
- the class or series and number of shares
beneficially owned by the stockholder
and by the nominee(s);
- a description of any arrangements or
understandings between the stockholder
and any other person with respect to the
proposal(s) or between the stockholder
or the nominee(s);
- a representation that the stockholder
intends to be represented at the meeting
in person or by proxy to make the
proposal or nomination; and
- with respect to a nomination, other
information regarding the stockholder as
would be required by the SEC in a proxy
statement and a written consent from the
nominee(s) consenting to be named as a
nominee(s) and, if elected, to serve as
a director.
</TABLE>
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<TABLE>
<CAPTION>
TRENWICK CHARTWELL
<S> <C>
AMENDMENT OF BY-LAWS
The Trenwick Restated Certificate of The Chartwell Restated Certificate of
Incorporation gives its directors the Incorporation provides that specific
power to make, alter or repeal the articles and sections of the Chartwell
Trenwick By-Laws. The Trenwick By-Laws Amended and Restated By-Laws may be
provide that they may be altered, amended repealed, altered, amended or rescinded,
or repealed, at a meeting of the in whole or in part, by a majority of the
stockholders, by a majority of shares entire board of directors then in office
represented and entitled to vote. Also, with the consent of 66 2/3% of the votes
subject to Delaware law, the Restated entitled to be cast by the holders of all
Certificate of Incorporation and the outstanding voting securities. The
By-Laws, the board of directors may by Chartwell Amended and Restated By-Laws
majority vote of those present at any provide that they may be altered, amended
meeting at which a quorum is present, or repealed, in whole or in part, or new
amend the By-Laws or enact such other By- By-Laws may be adopted by the stockholders
Laws as they may judge advisable for the or by the board of directors.
regulation of the conduct of affairs of
Trenwick.
TRANSACTIONS WITH INTERESTED STOCKHOLDERS
The Trenwick Restated Certificate of Chartwell's governing documents do not
Incorporation generally prohibits certain specifically address transactions with
transactions between Trenwick and any 10% interested stockholders. Chartwell is
stockholder, or any affiliate or associate subject to the provisions of Section 203
of Trenwick who has been a 10% stockholder of Delaware corporation law.
within the past two years, unless the
transaction is approved by a majority of
disinterested directors.
Prohibited transactions include:
- mergers and consolidations with any
interested stockholder or any company
that will become an affiliate or
associate of an interested stockholder
by virtue of the merger or
consolidation;
- certain transfers of company assets or
securities;
- liquidation or dissolution; and
- reclassification, recapitalization or
similar transactions that have the
effect of increasing the percentage of
stock owned by an interested
stockholder.
Trenwick is subject to restrictions
imposed by Section 203 of Delaware
corporation law on transactions with
interested stockholders. The restrictions
of Section 203 of Delaware corporation law
are similar to the restrictions described
above and contained in the Trenwick
Restated Certificate of Incorporation.
Under Section 203, transactions with a 15%
stockholder, rather than a 10%
stockholder, generally are prohibited for
three years following the time that the
stockholder became an interested
stockholder. Trenwick must comply with the
provisions of the Trenwick Restated
Certificate of Incorporation and Delaware
corporation law.
</TABLE>
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<TABLE>
<CAPTION>
TRENWICK CHARTWELL
<S> <C>
APPRAISAL RIGHTS
Under Delaware corporation law, in certain circumstances, a stockholder of a Delaware
corporation is entitled to demand appraisal and obtain payment of the judicially
determined fair value of his or her shares in the event the corporation is a constituent
corporation in a merger, provided such stockholder holds shares on the date of the
making of a demand for appraisal and continuously holds such shares through the
effective date of the merger, otherwise complies with the requirements of Delaware
corporation law for the perfection of appraisal rights and does not vote in favor of the
merger. However, this right to demand appraisal does not apply to stockholders if:
- they are stockholders of a surviving corporation and if a vote of the stockholders of
such corporation is not necessary to authorize the merger or consolidation; or
- their shares are of a class or series listed on a national securities exchange,
designated as a national market system security on an interdealer quotation system by
the NASD or are held of record by more than 2,000 stockholders on the date set to
determine the stockholders entitled to vote on the merger or consolidation.
Notwithstanding the above, appraisal rights are available for the shares of any class or
series of stock of a Delaware corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation to accept for their stock anything
except:
(i) shares of stock of the corporation surviving the merger or depository receipts in
respect of these shares;
(ii) shares of stock of any other corporation which at the effective date of the merger
or consolidation will be listed on a national securities exchange designated as a
national market system security on an interdealer quotation system by the NASD or
held of record by more than 2,000 stockholders;
(iii) cash in lieu of fractional shares or fractional depository receipts of the
corporations described in (i) and (ii); or
(iv) any combination of the shares of stock, depository receipts and cash in lieu of
fractional shares described in (i), (ii) and (iii).
A Delaware corporation may provide in its certificate of incorporation that the holders
of shares of any class or series of its stock have appraisal rights as the result of an
amendment to its certificate of incorporation or any merger or consolidation in which
the corporation is a constituent corporation or a sale of all or substantially all of
the assets of the corporation. Neither the Trenwick Restated Certificate of
Incorporation nor the Chartwell Restated Certificate of Incorporation contains any
provision regarding appraisal rights. Consequently, because Trenwick common stock is
listed on the NASDAQ, Trenwick common stockholders do not have appraisal rights in
respect of the merger, and because Chartwell common stock is listed on the NYSE and
Chartwell common stockholders will receive Trenwick shares and cash in lieu of
fractional shares in exchange for their Chartwell common stock, Chartwell common
stockholders also do not have appraisal rights in respect of the merger.
</TABLE>
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TRENWICK CHARTWELL
<S> <C>
STOCKHOLDER RIGHTS PLANS
Delaware law does not prohibit Delaware law does not prohibit
corporations from issuing stock purchase corporations from issuing stock purchase
rights or poison pills. The Trenwick rights or poison pills. The Chartwell
rights plan provides for the distribution rights plan provides for the distribution
of a dividend of one preferred stock of a dividend of one preferred stock
purchase right for each outstanding share purchase right for each outstanding share
of Trenwick common stock. The rights will of Chartwell common stock. The rights
be attached to shares of Trenwick common automatically trade with shares of
stock but will separate from Trenwick Chartwell common stock but will trade
common stock on the tenth business day separately from Chartwell common stock on
following one of the following events: the tenth business day following the
- a public announcement that a person or occurrence of one of the following events:
group of affiliated or associated - a public announcement that a person or
persons has acquired, or obtained the group of affiliated or associated persons
right to acquire, beneficial ownership has acquired, or obtained the right to
of 15% or more of the outstanding acquire, beneficial ownership of 20% or
Trenwick common stock; or more of the outstanding Chartwell common
- the commencement of a tender offer or stock; or
exchange offer that would result in a - the commencement or announcement of the
person or group beneficially owning 15% intent to commence a tender offer or
or more of the outstanding Trenwick exchange offer that would result in a
common stock. person or group of affiliated or
associated persons beneficially owning
20% or more of the outstanding Chartwell
common stock.
</TABLE>
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<TABLE>
<CAPTION>
TRENWICK CHARTWELL
<S> <C>
The rights are not triggered if the The rights are not triggered if the
acquiring person is Trenwick or any acquiring person is Chartwell or any
subsidiary of Trenwick, any employee subsidiary of Chartwell, any employee
benefit plan or employee benefit plan benefit plan or employee benefit plan
fiduciary of Trenwick or any subsidiary of fiduciary of Chartwell or any subsidiary
Trenwick, any person or group who gains of Chartwell or any person who
beneficial ownership of 15% or more of the inadvertently trips one of the triggers
outstanding shares by virtue of a set forth above.
reduction in the total number of shares When exercisable, each right will entitle
outstanding, or any person who its holder to buy one one-hundredth of a
inadvertently trips one of the triggers share of Chartwell junior participating
set forth above. cumulative preferred stock at a purchase
When exercisable, each right will entitle price of $120.00. If any person or group
its holder to buy one two-hundredths of a becomes the beneficial owner of 20% or
share of Trenwick junior participating more of the Chartwell's common stock, then
preferred stock at a purchase price of each right not owned by such person or
$125.00. If any person or group of becomes group will entitle its holder to purchase,
the beneficial owner of 15% or more of at the right's then current exercise
Trenwick's common stock, then each right price, shares of Chartwell's common stock
not owned by such person or group will having a value of twice the right's
entitle its holder to purchase, at the exercise price. If Chartwell is acquired
right's then current exercise price, in a merger or other business combination
shares of Trenwick's common stock having a transaction after a person or group has
value of twice the right's exercise price. acquired 20% or more of its common stock,
If Trenwick is acquired in a merger or in some circumstances, holders of rights
other business combination transaction and will be entitled to purchase a number of
Trenwick is not the surviving corporation the acquiring company's shares having a
or if 50% of Trenwick's assets or earning market value equal to twice the exercise
power is sold or transferred, in some price of the rights.
circumstances, holders of rights will be Prior to the acquisition by a person or
entitled to purchase a number of the group of beneficial ownership of 20% or
acquiring company's shares having a market more of Chartwell's common stock, the
value equal to twice the exercise price of rights are redeemable for $.001 per right
the rights. at the option of Chartwell's board of
Prior to the acquisition by a person or directors. If a person or a group becomes
group of beneficial ownership of 15% or the beneficial owner of 20% or more of
more of Trenwick's common stock, the Chartwell's common stock, Chartwell's
rights are redeemable for $.01 per right board of directors may exchange each right
at the option of Trenwick's board of not owned by such person or group for one
directors. If a person or a group becomes share of common stock of Chartwell.
the beneficial owner of 15% or more of The rights will expire on May 22, 2007,
Trenwick's common stock, Trenwick's board unless earlier redeemed or exchanged by
of directors may exchange each right not Chartwell. Chartwell has amended its
owned by such person or group for one rights plan so that the merger agreement
share of common stock of Trenwick. and the merger will not cause the rights
The rights will expire on September 23, plan to be triggered and the rights will
2007, unless earlier redeemed or exchanged expire at the effective time of the
by Trenwick. The merger will not cause the merger.
rights plan to be triggered.
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LEGAL MATTERS
The validity of the shares of Trenwick common stock to be issued in
connection with the merger will be passed upon for Trenwick by Jane T.
Wiznitzer, Esq., Vice President - Legal Affairs and Secretary of Trenwick.
It is a condition to the completion of the merger that Baker & McKenzie,
counsel to Trenwick, and LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited
liability partnership including professional corporations, counsel to Chartwell,
deliver opinions concerning the federal income tax consequences of the merger
and that LeBoeuf, Lamb, Greene & MacRae, L.L.P. deliver an opinion to the effect
that the merger will not constitute a "change of control" as defined in the
indenture relating to Chartwell's contingent interest notes due 2006.
EXPERTS
The consolidated financial statements and the related financial statement
schedules incorporated by reference from Trenwick Group Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1998 have been audited by
PricewaterhouseCoopers LLP, independent accountants, as stated in their report,
which is incorporated herein by reference, and have been so incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The financial statements and the related financial statement schedules
incorporated in this document by reference from Chartwell Re Corporation's
Annual Report on Form 10-K for the year ended December 31, 1998 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
FUTURE STOCKHOLDER PROPOSALS
Stockholder proposals intended for inclusion in Trenwick's proxy statement
for its 2000 annual stockholders meeting should be sent to the Secretary of
Trenwick at One Canterbury Green, Stamford, Connecticut 06901 and must be
received by December 20, 1999. If a stockholder presents a proposal at the 2000
annual meeting without Trenwick's having received notice of the proposal by
March 2, 2000, the proxies designated by Trenwick's board of directors may vote
on the proposal in their discretion without mention of the proposal in the proxy
statement or the proxy card.
Chartwell expects to complete the merger prior to its 2000 annual
stockholders meeting. Under Chartwell's bylaws, if a stockholder were to present
a proposal at the 2000 annual meeting without Chartwell's having received notice
of the proposal during the period beginning February 20, 2000 and ending March
21, 2000, the proxies designated by Chartwell's board of directors would be
permitted to vote on the proposal in their discretion without mention of the
proposal in the proxy statement or the proxy card. All proposals from Chartwell
stockholders for inclusion in the proxy materials for the 2000 annual meeting of
Chartwell would be required to be submitted to the Secretary of Chartwell by
December 2, 1999.
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WHERE YOU CAN FIND MORE INFORMATION
Trenwick and Chartwell each file annual, quarterly and other reports, proxy
statements and other information with the SEC under the Exchange Act. You may
read and copy this information at the following locations of the SEC:
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<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
at prescribed rates. Further information on the operation of the SEC's Public
Reference Room in Washington, D.C. can be obtained by calling the SEC at
1-800-SEC-0330. The SEC also maintains an Internet world wide web site that
contains reports, proxy statements and other information about issuers, such as
Trenwick and Chartwell, who file electronically with the SEC. The address of
that site is http://www.sec.gov. You can also inspect reports, proxy statements
and other information about Trenwick at the offices of the NASDAQ at 1735 K
Street, Washington, D.C. 20006 and about Chartwell at the offices of the NYSE at
20 Broad Street, New York, New York 10005, respectively.
Trenwick has filed a registration statement on Form S-4 to register with
the SEC the Trenwick common stock to be issued to Chartwell stockholders in the
merger. This document is part of the registration statement and constitutes a
prospectus of Trenwick in addition to being a proxy statement of Chartwell for
the Chartwell special meeting and a proxy statement of Trenwick for the Trenwick
special meeting. As allowed by the SEC rules and regulations, this document does
not contain all the information you can find in the registration statement or
the exhibits to the registration statement.
The SEC allows Trenwick and Chartwell to "incorporate by reference"
information into this document, which means that the companies can disclose
important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is deemed to
be part of this document, except for any information superseded by information
in this document. This document incorporates by reference the documents set
forth below that Trenwick and Chartwell have previously filed with the SEC.
These documents contain important information about the companies and their
financial condition.
<TABLE>
<S> <C>
TRENWICK SEC FILINGS (FILE NO. 0-14737) PERIOD OR DATE FILED
Registration Statement on Form 8-A Filed on September 24, 1997
Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Reports on Form 10-Q Quarters ended March 31 and June 30, 1999
Proxy Statement for its annual meeting of Filed on April 16, 1999
stockholders held on May 20, 1999
Current Report on Form 8-K Filed on June 25, 1999
Current Report on Form 8-K Filed on September 1, 1999
CHARTWELL SEC FILINGS (FILE NO. 1-12502) PERIOD OR DATE FILED
Registration Statement on Form 8-A Filed on June 6, 1997
Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Reports on Form 10-Q Quarters ended March 31 and June 30, 1999
Proxy Statement for its annual meeting of Filed on March 30, 1999
stockholders held on May 20, 1999
Current Report on Form 8-K Filed on June 25, 1999
Registration Statement on Form 8-A/A Filed on July 2, 1999
</TABLE>
Trenwick and Chartwell incorporate by reference additional documents that
either company may file with the SEC between the date of this document and the
date of the special meetings. These documents
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include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q and Current Reports on Form 8-K, as well as proxy statements.
Trenwick has supplied all information contained or incorporated by
reference in this document relating to Trenwick, and Chartwell has supplied all
such information relating to Chartwell.
You can obtain any of the documents incorporated by reference in this
document from Trenwick or Chartwell, as the case may be, or from the SEC through
the SEC's web site at the address described above. Documents incorporated by
reference are available from the companies without charge, excluding any
exhibits to those documents unless the exhibit is specifically incorporated by
reference as an exhibit in this document. You can obtain documents incorporated
by reference in this document by requesting them in writing or by telephone from
the appropriate company at the following addresses:
<TABLE>
<S> <C>
TRENWICK GROUP INC. CHARTWELL RE CORPORATION
One Canterbury Green Four Stamford Plaza
Stamford, Connecticut 06901 107 Elm Street
(203) 353-5500 Stamford, Connecticut 06902
Attention: Jane T. Wiznitzer, (203) 705-2500
Vice President-Legal Affairs and Secretary Attention: John V. Del Col,
Vice President, General Counsel and Secretary
</TABLE>
If you would like to request documents from us, please do so by September
22, 1999 to receive them before the Trenwick special meeting or the Chartwell
special meeting, as the case may be.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS DOCUMENT TO VOTE ON ADOPTION OF THE MERGER AGREEMENT AND
MERGER. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT FROM WHAT IS CONTAINED IN THIS DOCUMENT. THIS DOCUMENT IS DATED
SEPTEMBER 7, 1999. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
DOCUMENT IS ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE, AND NEITHER THE
MAILING OF THIS DOCUMENT TO STOCKHOLDERS NOR THE ISSUANCE OF TRENWICK COMMON
STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
TRENWICK GROUP INC.
AND
CHARTWELL RE CORPORATION
DATED AS OF JUNE 21, 1999
<PAGE> 115
TABLE OF CONTENTS
ARTICLE I
THE MERGER
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SECTION 1.1. The Merger.................................... 2
SECTION 1.2. Closing....................................... 2
SECTION 1.3. Effective Time................................ 2
SECTION 1.4. Effects of the Merger......................... 2
SECTION 1.5. Certificate of Incorporation; By-laws......... 2
SECTION 1.6. Directors and Officers........................ 3
ARTICLE II
EFFECT OF THE MERGER ON SECURITIES
SECTION 2.1. Effect on Capital Stock....................... 3
(a) Cancellation of Treasury Stock and Trenwick-Owned
Stock.................................................. 3
(b) Conversion of Chartwell Common Stock.................. 3
(c) Conversion Number..................................... 4
(d) Cancellation and Retirement of Chartwell Common
Stock.................................................. 4
SECTION 2.2. Exchange of Certificates...................... 4
(a) Exchange Agent........................................ 4
(b) Letter of Transmittal................................. 4
(c) Exchange Procedures................................... 4
(d) Distributions with Respect to Unexchanged Shares...... 5
(e) No Further Ownership Rights in Chartwell Common
Stock.................................................. 5
(f) No Fractional Shares.................................. 5
(g) Termination of Exchange Fund and Common Shares
Trust.................................................. 6
(h) No Liability.......................................... 6
(i) Lost Certificates..................................... 7
SECTION 2.3. Tax Consequences of Merger.................... 7
SECTION 2.4. Stock Options, Warrants and Stock Purchase
Plans..................................................... 7
SECTION 2.5. Adjustments................................... 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of Chartwell... 8
(a) Organization, Standing and Corporate Power............ 8
(b) Subsidiaries.......................................... 9
(c) Capital Structure..................................... 9
(d) Authority; Noncontravention........................... 10
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(e) SEC Documents; Financial Statements................... 11
(f) Information Supplied.................................. 13
(g) Absence of Certain Changes or Events.................. 13
(h) Benefit Plans......................................... 14
(i) Taxes................................................. 19
(j) No Excess Parachute Payments; Section 162(m) of the
Code................................................... 21
(k) Compliance with Applicable Laws....................... 21
(l) Litigation............................................ 21
(m) No Undisclosed Liabilities............................ 22
(n) Reserves.............................................. 22
(o) Insurance Issued...................................... 23
(p) Opinion of Financial Advisor.......................... 23
(q) Voting Requirements................................... 23
(r) Rights Agreement; Section 203......................... 23
(s) Brokers............................................... 24
(t) No Default............................................ 24
(u) Related Party Transactions............................ 24
(v) Title to Property..................................... 24
(w) Environmental......................................... 25
(x) Chartwell Investees................................... 25
(y) Reinsurance Contracts, Coverholders and MGAs.......... 26
(z) Reinsurance Agreement................................. 27
SECTION 3.2. Representations and Warranties of Trenwick.... 27
(a) Organization, Standing and Corporate Power............ 27
(b) Subsidiaries.......................................... 27
(c) Capital Structure..................................... 27
(d) Authority; Noncontravention........................... 28
(e) SEC Documents; Financial Statements................... 29
(f) Information Supplied.................................. 31
(g) Absence of Certain Changes or Events.................. 31
(h) Benefit Plans......................................... 32
(i) Taxes................................................. 36
(j) Compliance with Applicable Laws....................... 38
(k) Litigation............................................ 38
(l) No Undisclosed Liabilities............................ 39
(m) Reserves.............................................. 39
(n) Opinion of Financial Advisor.......................... 40
(o) Voting Requirements................................... 40
(p) Brokers............................................... 40
(q) No Default............................................ 40
(r) Related Party Transactions............................ 40
(s) Title to Property..................................... 41
(t) Environmental......................................... 41
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(u) Reinsurance Contracts, Coverholders and MGAs.......... 42
(v) Trenwick Investees.................................... 42
(w) Insurance Issued...................................... 43
(x) Approvals and Permits................................. 43
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1. Conduct of Business........................... 43
(a) Conduct of Business by Chartwell...................... 43
(b) Conduct of Business by Trenwick....................... 45
(c) Other Actions......................................... 48
(d) Advice of Changes..................................... 48
SECTION 4.2. No Solicitation by Chartwell.................. 48
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. Preparation of the Form S-4 and the Joint
Proxy Statement........................................... 50
SECTION 5.2. Stockholder Approval......................... 51
SECTION 5.3. Access to Information; Confidentiality....... 51
SECTION 5.4. Commercially Reasonable Efforts.............. 52
SECTION 5.5. Benefit Plans................................ 52
SECTION 5.6. Indemnification and Insurance................ 52
SECTION 5.7. Public Announcements......................... 53
SECTION 5.8. Consents, Approvals and Filings.............. 54
SECTION 5.9. NASDAQ Approval.............................. 54
SECTION 5.10. Affiliates and Certain Stockholders.......... 55
SECTION 5.11. Tax Matters.................................. 55
SECTION 5.12. Letters of Accountants....................... 55
SECTION 5.13. Stockholder Litigation....................... 55
SECTION 5.14. Fees and Expenses............................ 55
SECTION 5.15. Reinsurance Agreement........................ 57
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Each Party's Obligation To
Effect the Merger......................................... 57
(a) Stockholder Approval.................................. 57
(b) Governmental, Regulatory and Lloyd's Consents......... 57
(c) HSR Act............................................... 57
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(d) No Injunctions or Restraints.......................... 57
(e) Form S-4.............................................. 58
(f) NASDAQ................................................ 58
(g) Third-Party Consents.................................. 58
SECTION 6.2. Conditions to Obligation of Trenwick.......... 58
(a) Representations and Warranties........................ 58
(b) Performance of Obligations of Chartwell............... 58
(c) Tax Opinion........................................... 58
(d) No Material Adverse Change............................ 58
(e) Ratings............................................... 59
(f) Reinsurance Agreement................................. 59
(g) Opinion............................................... 59
SECTION 6.3. Conditions to Obligation of Chartwell......... 59
(a) Representations and Warranties........................ 59
(b) Performance of Obligations of Trenwick................ 59
(c) Tax Opinion........................................... 59
(d) Material Adverse Change............................... 59
(e) Ratings............................................... 59
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination................................... 60
SECTION 7.2. Effect of Termination......................... 61
SECTION 7.3. Amendment..................................... 62
SECTION 7.4. Extension; Waiver............................. 62
SECTION 7.5. Procedure for Termination, Amendment,
Extension or Waiver....................................... 62
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1. Nonsurvival of Representations and
Warranties................................................ 62
SECTION 8.2. Definitions.................................. 62
SECTION 8.3. Notices...................................... 64
SECTION 8.4. Interpretation............................... 65
SECTION 8.5. Counterparts................................. 65
SECTION 8.6. Entire Agreement; No Other Representations;
No Third-Party Beneficiaries................. 65
SECTION 8.7. Governing Law................................ 66
SECTION 8.8. Assignment................................... 66
SECTION 8.9. Enforcement and Consent to Jurisdiction...... 66
SECTION 8.10. Severability................................. 66
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 21, 1999 (the "Agreement"),
between Trenwick Group Inc., a Delaware corporation ("Trenwick") and Chartwell
Re Corporation, a Delaware corporation ("Chartwell").
WHEREAS, the respective Boards of Directors of Trenwick and Chartwell deem it
advisable and in the best interest of their respective companies and
stockholders to enter into this Agreement, pursuant to which Chartwell shall be
merged with and into Trenwick (the "Merger"), and the transactions contemplated
hereby and have adopted resolutions approving this Agreement and the
transactions contemplated hereby;
WHEREAS, as a condition to Trenwick's willingness to execute and deliver this
Agreement, to pay the Merger Consideration to the Chartwell stockholders and to
consummate the Merger and the other transactions contemplated hereby, Trenwick
has required, and Chartwell has agreed, that Trenwick be indemnified and
guaranteed, effective as of the Effective Time (as defined herein), against
certain adverse development in the reserves for losses, loss adjustment expenses
and certain other balance sheet items of Chartwell, and that such indemnity and
guaranty be accomplished through the reinsurance agreement described in Section
3.1(z) of the Chartwell Disclosure Schedule (as defined herein) (the
"Reinsurance Agreement") and whereas, such indemnification and guarantee will be
effected through the securing of the Reinsurance Agreement, which will be
effective at the Effective Time and an express condition to the closing of the
Merger and whereas, consummation of the Merger is predicated upon the
Reinsurance Agreement being obtained by Chartwell;
WHEREAS, for federal income tax purposes, it is intended that the Merger will
qualify as a reorganization under the provisions of Section 368 (a) of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, subject to and immediately following the execution and delivery of this
Agreement, Chartwell and Trenwick will enter into an agreement (the "Stock
Option Agreement"), pursuant to which Chartwell will grant Trenwick the option
to purchase a number of shares equal to 19.9% of the outstanding common stock,
par value $.01 per share, of Chartwell ("Chartwell Common Stock"), upon the
terms and subject to the conditions set forth therein; and
WHEREAS, Trenwick and Chartwell desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the representations, warranties, covenants
and agreements contained in this Agreement, the parties agree as follows:
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ARTICLE I
THE MERGER
SECTION 1.1. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL"), Chartwell shall be merged with and into Trenwick at the
Effective Time (as hereinafter defined). At the Effective Time, the separate
existence of Chartwell shall cease, and Trenwick shall continue as the surviving
corporation (the "Surviving Corporation").
SECTION 1.2. Closing. Unless this Agreement shall have been terminated
pursuant to Section 7.1, and subject to the satisfaction or waiver of each of
the conditions set forth in Article VI, the closing of the Merger (the
"Closing") shall take place at 10:00 a.m. on the date that is the second
business day following the date on which the last to be fulfilled or waived of
the conditions set forth in Section 6.1 shall be fulfilled or waived in
accordance with this Agreement (other than those conditions that by their nature
are to be fulfilled on the Closing Date, but subject to the fulfillment or
waiver of those conditions), at the offices of Baker & McKenzie, 805 Third
Avenue, New York, New York, unless another date, time or place is agreed to in
writing by the parties hereto. The actual date and time of the Closing are
herein referred to as the "Closing Date."
SECTION 1.3. Effective Time. The parties hereto will file with the Secretary
of State of the State of Delaware (the "Delaware Secretary of State") on the
date of the Closing (or on such other later date as Trenwick and Chartwell may
agree in writing) a certificate of merger or other appropriate documents,
executed in accordance with the relevant provisions of the DGCL, and make all
other filings or recordings required under the DGCL in connection with the
Merger. The Merger shall become effective upon the filing of the certificate of
merger with the Delaware Secretary of State, or at such later time as is
specified in the certificate of merger (the "Effective Time").
SECTION 1.4. Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges, powers and franchises of Chartwell and Trenwick shall vest
in the Surviving Corporation, and all debts, liabilities and duties of Chartwell
and Trenwick shall become the debts, liabilities and duties of the Surviving
Corporation, all as provided under the DGCL.
SECTION 1.5. Certificate of Incorporation; By-laws. (a) At the Effective Time
and without any further action on the part of Chartwell or Trenwick, the
Restated Certificate of Incorporation of Trenwick as in effect immediately prior
to the Effective Time shall be the certificate of incorporation of the Surviving
Corporation until thereafter amended as provided therein and under the DGCL.
(b) At the Effective Time and without any further action on the part of
Chartwell or Trenwick, the By-laws of Trenwick shall be the By-laws of the
Surviving
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Corporation until thereafter amended or repealed in accordance with their terms
or the Certificate of Incorporation of the Surviving Corporation and as provided
by law.
SECTION 1.6. Directors and Officers. (a) The directors of Trenwick at the
Effective Time shall be the directors of the Surviving Corporation; provided,
that at the Effective Time, Trenwick shall increase the size of its Board of
Directors in order to enable the four (4) individuals set forth in Section 1.6
of the Chartwell Disclosure Schedule, or any mutually agreed substitute for any
of such individuals who is unwilling or unable to so serve (the "Designees"),
which Designees shall include any director whose election is provided for
pursuant to the Stockholders Agreement, dated as of December 13, 1995, among
Chartwell and the security holders named or referenced therein, to be members of
the Trenwick Board of Directors. The Trenwick Board of Directors shall appoint
each of the Designees to the Trenwick Board of Directors as of the Effective
Time, with such Designees to be divided as evenly as possible among the classes
of directors of Trenwick.
(b) The officers of Trenwick at the Effective Time shall, from and after the
Effective Time, be the officers of the Surviving Corporation, until the earlier
of their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON SECURITIES
SECTION 2.1. Effect on Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holders of any shares of
Chartwell Common Stock or any other shares of capital stock of Chartwell or any
shares of capital stock of Trenwick:
(a) Cancellation of Treasury Stock and Trenwick-Owned Stock. Each share of
Chartwell Common Stock issued and outstanding immediately prior to the Effective
Time that is owned by Trenwick or any subsidiary of Trenwick or by Chartwell or
any subsidiary of Chartwell (together, in each case, with the associated Right
(as defined in Section 3.1(c)) shall automatically be canceled and retired and
shall cease to exist, and no cash or other consideration shall be delivered or
deliverable in exchange therefor.
(b) Conversion of Chartwell Common Stock. Each share of Chartwell Common Stock
issued and outstanding immediately prior to the Effective Time (other than
shares to be canceled in accordance with Section 2.1(a)) together with the
associated Right shall be converted into the right to receive that number (the
"Stock Consideration") of validly issued, fully paid and nonassessable shares of
common stock, par value $.10 per share, of Trenwick ("Trenwick Common Stock")
which is equal to the Conversion Number (as defined in Section 2.1(c)). The
Stock Consideration and any cash to be paid in accordance with Section 2.2 in
lieu of fractional shares of Chartwell Common Stock are referred to collectively
as the "Merger Consideration."
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(c) Conversion Number. As used herein, "Conversion Number" shall mean 0.825.
(d) Cancellation and Retirement of Chartwell Common Stock. As of the Effective
Time, all shares of Chartwell Common Stock, other than shares to be canceled in
accordance with Section 2.1(a), issued and outstanding immediately prior to the
Effective Time, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Chartwell Common Stock shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration upon surrender of such certificate in accordance with Section 2.2,
without interest.
SECTION 2.2. Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, Trenwick shall deposit with a
bank or trust company designated by Trenwick and reasonably satisfactory to
Chartwell (the "Exchange Agent"), certificates representing the shares of
Trenwick Common Stock representing the aggregate Stock Consideration (such
certificates, together with any dividends or distributions with respect to such
certificates, being hereinafter referred to as the "Exchange Fund").
(b) Letter of Transmittal. Promptly after the Effective Time (but in no event
more than 5 days thereafter), the Surviving Corporation shall cause the Exchange
Agent to mail to each record holder of certificates that immediately prior to
the Effective Time represented shares of Chartwell Common Stock which have been
converted pursuant to Section 2.1, a form of letter of transmittal and
instructions for use in surrendering such certificates and receiving the
consideration to which such holder shall be entitled pursuant to Section 2.1.
(c) Exchange Procedures. As soon as practicable after the Effective Time, each
holder of an outstanding certificate or certificates which prior thereto
represented shares of Chartwell Common Stock shall, upon surrender to the
Exchange Agent of such certificate or certificates and acceptance thereof by the
Exchange Agent, be entitled to a certificate representing that number of whole
shares of Trenwick Common Stock (and cash in lieu of fractional shares of
Trenwick Common Stock as contemplated by this Section 2.2) which the aggregate
number of shares of Chartwell Common Stock previously represented by such
certificate or certificates surrendered shall have been converted into the right
to receive pursuant to Section 2.1(b) of this Agreement. The Exchange Agent
shall accept such certificates upon compliance with such reasonable terms and
conditions as the Exchange Agent may impose to effect an orderly exchange
thereof in accordance with normal exchange practices. If the consideration to be
paid in the Merger (or any portion thereof) is to be delivered to any person
other than the person in whose name the certificate representing shares of
Chartwell Common Stock surrendered in exchange therefore is registered, it shall
be a condition to such exchange that the certificate so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
person requesting such exchange shall pay to the Exchange Agent any transfer or
other taxes required by reason of the payment of such consideration to a person
other than the registered holder of the certificate surrendered, or shall
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not applicable. After the Effective Time,
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there shall be no further transfer on the records of Chartwell or its transfer
agent of certificates representing shares of Chartwell Common Stock and if such
certificates are presented to Chartwell for transfer, they shall be canceled
against delivery of the Merger Consideration as hereinabove provided. Until
surrendered as contemplated by this Section 2.2(c), each certificate
representing shares of Chartwell Common Stock (other than certificates
representing shares to be cancelled in accordance with Section 2.1(a)) shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration, without any interest
thereon, as contemplated by Section 2.1. No interest will be paid or will accrue
on any cash payable as Merger Consideration.
(d) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to Trenwick Common Stock with a record date after the
Effective Time shall be paid to the holder of any certificate that immediately
prior to the Effective Time represented shares of Chartwell Common Stock which
have been converted pursuant to Section 2.1, until the surrender for exchange of
such certificate in accordance with this Article II. Following surrender for
exchange of any such certificate, there shall be paid to the holder of such
certificate, without interest, (i) at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to the number of whole shares of Trenwick Common
Stock into which the shares of Chartwell Common Stock represented by such
certificate immediately prior to the Effective Time were converted pursuant to
Section 2.1, and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time, but prior to
such surrender, and with a payment date subsequent to such surrender, payable
with respect to such whole shares of Trenwick Common Stock.
(e) No Further Ownership Rights in Chartwell Common Stock. The Merger
Consideration paid upon the surrender for exchange of certificates representing
shares of Chartwell Common Stock in accordance with the terms of this Article II
shall be deemed to have been issued and paid in full satisfaction of all rights
pertaining to the shares of Chartwell Common Stock theretofore represented by
such certificates, subject, however, to the Surviving Corporation's obligation
(if any) to pay any dividends or make any other distributions with a record date
prior to the Effective Time which may have been declared by Chartwell on such
shares of Chartwell Common Stock in accordance with the terms of this Agreement
and which remain unpaid at the Effective Time.
(f) No Fractional Shares. (i) No certificates or scrip representing fractional
shares of Trenwick Common Stock shall be issued upon the surrender for exchange
of certificates that immediately prior to the Effective Time represented shares
of Chartwell Common Stock which have been converted pursuant to Section 2.1, and
such fractional share interests will not entitle the owner thereof to vote or to
any rights as a stockholder of Trenwick. No Chartwell stockholder shall be
entitled to receive cash in lieu of fractional shares in an amount greater than
the value of one full share of Trenwick Common Stock.
(ii) As promptly as practicable following the Effective Time, the Exchange Agent
shall determine the excess of (x) the number of shares of Trenwick Common Stock
delivered to the Exchange Agent by Trenwick pursuant to Section 2.2(a) over (y)
the
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aggregate number of whole shares of Trenwick Common Stock to be distributed to
holders of the certificates formerly representing shares of Chartwell Common
Stock pursuant to Section 2.2(c) (such excess being herein called the "Excess
Shares."). As soon after the Effective Time as practicable, the Exchange Agent,
as agent for the holders of the certificates formerly representing shares of
Chartwell Common Stock, shall sell the Excess Shares at then prevailing prices
on the Nasdaq Stock Market National Market ("NASDAQ") all in the manner provided
in paragraph (iii) of this Section 2.2(f).
(iii) The sale of the Excess Shares by the Exchange Agent shall be executed on
NASDAQ through one or more authorized market makers and shall be executed in
round lots to the extent practicable. Until the net proceeds of such sale or
sales have been distributed to the holders of the certificates, the Exchange
Agent will hold such proceeds in trust for the holders of the certificates (the
"Common Shares Trust"). Trenwick shall pay all commissions, transfer taxes and
other out-of-pocket transaction costs, including the expenses and compensation
of the Exchange Agent, incurred in connection with such sale of the Excess
Shares. The Exchange Agent shall determine the portion of the Common Shares
Trust to which each holder of a certificate shall be entitled, if any, by
multiplying the amount of the aggregate net proceeds comprising the Common
Shares Trust by a fraction, the numerator of which is the amount of the
fractional share interest to which such holder is entitled and the denominator
of which is the aggregate amount of fractional share interests to which all
holders of the certificates are entitled.
(iv) As soon as practicable after the determination of the amount of cash, if
any, to be paid to holders of the certificates in lieu of any fractional share
interests, the Exchange Agent shall make available such amounts, without
interest, to such holders of the certificates.
(g) Termination of Exchange Fund and Common Shares Trust. Any portion of the
Exchange Fund or Common Shares Trust which remains undistributed to the holders
of the certificates representing shares of Chartwell Common Stock for 180 days
after the Effective Time shall be delivered to Trenwick, upon demand, and any
holders of shares of Chartwell Common Stock who have not theretofore complied
with this Article II shall thereafter look only to Trenwick for payment of their
claim for any Merger Consideration and any dividends or distributions with
respect to Trenwick Common Stock.
(h) No Liability. None of Chartwell, Trenwick or the Exchange Agent shall be
liable to any person in respect of any shares, cash, dividends or distributions
payable from the Exchange Fund or Common Shares Trust delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
If any certificates representing shares of Chartwell Common Stock shall not have
been surrendered prior to five years after the Effective Time (or immediately
prior to such earlier date on which any Merger Consideration in respect of such
certificate would otherwise escheat to or become the property of any
Governmental Entity (as defined in Section 3.1(d))), any such shares, cash,
dividends or distributions payable in respect of such certificate shall, to the
extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any person previously
entitled thereto.
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(i) Lost Certificates. If any certificate representing Chartwell Common Stock
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such certificate to be lost, stolen or
destroyed and, if required by the Surviving Corporation, the posting by such
person of a bond in such reasonable amount as the Surviving Corporation may
direct as indemnity against any claim that may be made against it with respect
to such certificate, the Exchange Agent will deliver in exchange for such lost,
stolen or destroyed certificate the Merger Consideration set forth in Section
2.1(b) with respect to the shares of Chartwell Common Stock formerly represented
thereby, without any interest thereon.
SECTION 2.3. Tax Consequences of Merger. It is the intent of Chartwell and
Trenwick and the holders of the Chartwell Common Stock and the holders of the
Trenwick Common Stock that the Merger qualify as a reorganization described in
Section 368(a)(1) of the Code, pursuant to which none of the holders of the
Chartwell Common Stock or the holders of the Trenwick Common Stock will
recognize any gain or loss for Federal income tax purposes, except to the extent
of any cash received in lieu of fractional shares.
SECTION 2.4. Stock Options, Warrants and Stock Purchase Plans.
(a) At the Effective Time, each employee and director stock option to purchase
Chartwell Common Stock granted under any of the Stock Option Plans (as
hereinafter defined in Section 3.1(c)) outstanding as of the Effective Time
(each, a "Stock Option"), whether or not then vested or exercisable, shall be
assumed by Trenwick and converted into an option to acquire, on the same terms
and conditions as were applicable under such Stock Option prior to the Effective
Time, the number (rounded down to the nearest whole number) of shares of
Trenwick Common Stock determined by multiplying (x) the number of shares of
Chartwell Common Stock subject to such Stock Option immediately prior to the
Effective Time by (y) the Conversion Number, at a price per share of Trenwick
Common Stock (rounded up to the nearest whole cent) equal to (A) the exercise
price per share otherwise purchasable pursuant to such Stock Option divided by
(B) the Conversion Number. At the Effective Time, each then outstanding warrant
to purchase Chartwell Common Stock (each, a "Warrant") shall be assumed by
Trenwick in accordance with its terms.
(b) At the Effective Time, each option to purchase Chartwell Common Stock under
Chartwell's Sharesave Scheme 1997 (each, a "Sharesave Stock Option") with
respect to the 1997, 1998 and 1999 calendar years, but only to the extent
accrued to the Effective Time, whether or not then vested or exercisable, shall
be converted as of the Effective Time into the right to receive from the
Surviving Corporation the number (rounded down to the next whole number, with
cash to be paid in lieu of any fractional share eliminated through such
rounding) of shares of Trenwick Common Stock equal to the product of (i) the
number of shares of Chartwell Common Stock that were subject to such Sharesave
Stock Option immediately prior to its conversion pursuant to this Section 2.4
and (ii) the Conversion Number, less the number of shares of Trenwick Common
Stock equal to any U.K. tax required to be withheld by the Surviving
Corporation. The amount of cash to be paid in lieu of fractional shares pursuant
to this Section 2.4(b) shall be determined as provided in Section 2.2(f)(iii).
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(c) Notwithstanding any other provision of this Agreement to the contrary, prior
to the Effective Time Chartwell shall make any amendments to the Stock Option
Plans and Stock Purchase Plans (as hereinafter defined in Section 3.1(c)) and
take such other actions, if any, as are necessary to give effect to the
transactions contemplated by this Section.
(d) Trenwick shall take all corporate action necessary to reserve for issuance a
sufficient number of shares of Trenwick Common Stock for delivery pursuant to
the terms set forth in this Section 2.4. At the Effective Time, Trenwick shall
file with the Securities and Exchange Commission (the "SEC") a registration
statement or statements on Form S-8, or such other appropriate form as Trenwick
may select, with respect to the Trenwick Common Stock subject to the Stock
Options pursuant to this Section 2.4, and shall use its reasonable best efforts
to maintain the effectiveness of the registration statement and current status
of the prospectus relating thereto, as well as comply with any applicable state
securities or "blue sky" laws, for so long as such Stock Options remain
outstanding. The shares of Trenwick Common Stock to be issued pursuant to
Section 2.4(b) shall be registered under the Form S-4 (as hereinafter defined).
(e) Chartwell and Trenwick shall take all such steps as may be required to
provide that, with respect to each Section 16 Affiliate (as defined below), (i)
the transactions contemplated by this Article II and (ii) any other dispositions
of Chartwell equity securities (including derivative securities) or other
acquisitions of Trenwick equity securities (including derivative securities) in
connection with this Agreement, shall be exempt under Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For
purposes of this Agreement, "Section 16 Affiliate" shall mean each individual
who (x) immediately prior to the Effective Time is a director or executive
officer of Chartwell or (y) at the Effective Time will become a director or
executive officer of Trenwick.
SECTION 2.5. Adjustments. If at any time during the period between the date of
this Agreement and the Effective Time, any change in the outstanding shares of
capital stock of Trenwick or Chartwell shall occur by reason of any
reclassification, recapitalization, stock split combination, exchange or
readjustment of shares, any stock dividend thereon with a record date during
such period, or any similar transaction, the Merger Consideration and the
adjustments to options and warrants and the payments required to be made under
Section 2.4 shall be appropriately adjusted.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of Chartwell. Except as disclosed
in the Disclosure Schedule delivered by Chartwell to Trenwick at or prior to the
execution of this Agreement (the "Chartwell Disclosure Schedule") and making
reference to the particular subsection of this Agreement to which exception is
being taken, Chartwell represents and warrants to Trenwick as follows:
(a) Organization, Standing and Corporate Power. Each of Chartwell and its
subsidiaries (as defined in Section 8.2(d)) is a corporation or other legal
entity duly organized,
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validly existing and in good standing (with respect to jurisdictions that
recognize such concept) under the laws of the jurisdiction in which it is
organized and has the requisite corporate or other power, as the case may be,
and authority to carry on its business as now being conducted, except where the
failure to be so organized, existing or in good standing or to have such power
individually or in the aggregate would not have a Material Adverse Effect (as
defined in Section 8.2(h)) on Chartwell. Each of Chartwell and its subsidiaries
is duly qualified or licensed to do business and is in good standing (with
respect to jurisdictions that recognize such concept) in each jurisdiction in
which the nature of its business or the ownership, leasing or operation of its
properties makes such qualification, licensing or good standing necessary,
except for those jurisdictions where the failure to be so qualified or licensed
or to be in good standing or to have such power individually or in the aggregate
would not have a Material Adverse Effect on Chartwell. Chartwell has delivered
to Trenwick complete and correct copies of its Certificate of Incorporation and
By-laws and the Certificates of Incorporation and By-laws, or other
organizational documents, of its subsidiaries, in each case as amended to the
date of this Agreement.
(b) Subsidiaries. Section 3.1(b) of the Chartwell Disclosure Schedule includes
all the subsidiaries of Chartwell which as of the date of this Agreement are
Significant Subsidiaries (as defined in Rule 1-02 of Regulation S-X of the SEC).
All the outstanding shares of capital stock of, or other equity interests in,
each such Significant Subsidiary have been validly issued and are fully paid and
nonassessable and are owned directly or indirectly by Chartwell, free and clear
of all pledges, claims, liens, charges, encumbrances and security interests of
any kind or nature whatsoever (collectively, "Liens").
(c) Capital Structure. The authorized capital stock of Chartwell consists of
20,000,000 shares of Chartwell Common Stock and 5,000,000 shares of preferred
stock, par value $1.00 per share. At the close of business on June 18, 1999, (i)
9,641,854 shares of Chartwell Common Stock were issued and outstanding, (ii)
zero shares of Chartwell Common Stock were held by Chartwell in its treasury;
(iii) 1,471,300 shares of Chartwell Common Stock were reserved for issuance
pursuant to outstanding Stock Options issued under Chartwell's Amended and
Restated 1993 Stock Option Plan, 1997 Omnibus Stock Incentive Plan and 1996
Non-Employee Director Stock Option Plan (collectively, the "Stock Option
Plans"), (iv) 25,045 shares of Chartwell Common Stock were reserved for issuance
pursuant to the 1995 Employee Stock Purchase Plan and Sharesave Scheme 1997
(collectively, the "Stock Purchase Plans") (including shares of Chartwell Common
Stock that were reserved for issuance pursuant to options granted pursuant to
the 1995 Employee Stock Purchase Plan ("ESPP Stock Options") and Sharesave Stock
Options then outstanding), (v) 334,532 shares of Chartwell Common Stock were
reserved for issuance upon the exercise of the Warrants listed in Section 3.1(c)
of the Chartwell Disclosure Schedule and (vi) 125,000 shares of Junior
Participating Cumulative Preferred Stock, par value $1.00 per share, were
reserved for issuance in connection with the rights (the "Rights") issued
pursuant to the Rights Agreement dated as of May 22, 1997 (the "Rights
Agreement"), between Chartwell and State Street Bank and Trust Company. Except
as set forth above, at the close of business on June 18, 1999, no shares of
capital stock or other equity securities of Chartwell were issued, reserved for
issuance or outstanding. All outstanding shares of capital stock of Chartwell
are, and all shares which may be issued pursuant to the Stock Option Plans, the
Stock Purchase Plans or the Warrants will be, when issued, duly authorized,
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validly issued, fully paid and nonassessable and not subject to preemptive
rights. Except as set forth in Section 3.1(c) of the Chartwell Disclosure
Schedule, since January 1, 1999, no shares of the capital stock of Chartwell
have been issued other than pursuant to Stock Options, Warrants, ESPP Stock
Options or Sharesave Stock Options already in existence on such date, and, since
such date, no Stock Options, Warrants, ESPP Stock Options or Sharesave Stock
Options have been granted. Except as set forth in Section 3.1(c) of the
Chartwell Disclosure Schedule, no bonds, debentures, notes or other indebtedness
of Chartwell or any subsidiary of Chartwell having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which the stockholders of Chartwell or any subsidiary of
Chartwell may vote are issued or outstanding. Section 3.1(c) of the Chartwell
Disclosure Schedule lists each subsidiary of Chartwell and, except for the
capital stock of such subsidiaries and the other ownership interests listed in
Section 3.1(c) of the Chartwell Disclosure Schedule, Chartwell does not own,
directly or indirectly, any capital stock or other ownership interest in any
corporation, partnership, joint venture or other entity other than any
publicly-traded corporation in which Chartwell owns 100 or fewer shares of
common stock. Except as disclosed in Section 3.1(c) of the Chartwell Disclosure
Schedule, all the outstanding shares of capital stock of each subsidiary of
Chartwell have been validly issued and are fully paid and nonassessable and are
owned by Chartwell, by one or more wholly owned subsidiaries of Chartwell or by
Chartwell and one or more such wholly owned subsidiaries, free and clear of all
Liens. Except as set forth above or in Section 3.1(c) of the Chartwell
Disclosure Schedule, there are not any securities, options, warrants, rights,
commitments or agreements of any kind to which Chartwell or any subsidiary is a
party or by which any of them is bound obligating Chartwell or any subsidiary to
issue, sell or deliver, or repurchase, redeem or otherwise acquire, shares of
capital stock or other equity or voting securities of any of them or securities
convertible into or exchangeable for capital stock or voting securities of
Chartwell, or obligating any of them to issue, sell, deliver, grant, extend or
enter into any such security, option, warrant, right, commitment or agreement.
Except as set forth in Section 3.1(c) of the Chartwell Disclosure Schedule,
there are no stockholder agreements, voting trusts or other agreements or
understandings to which Chartwell or any of its subsidiaries is a party, or to
which any of them is bound, relating to the voting or disposition of any shares
of capital stock of Chartwell or any subsidiary thereof.
(d) Authority; Noncontravention. Chartwell has all requisite corporate power
and authority to enter into this Agreement and, subject to obtaining the
Chartwell Stockholder Approval (as defined in Section 3.1(q)), to consummate the
transactions contemplated by this Agreement. Chartwell has all requisite
corporate power and authority to enter into the Stock Option Agreement and to
consummate the transactions contemplated thereby. The execution and delivery of
this Agreement and the Stock Option Agreement by Chartwell and the consummation
by Chartwell of the transactions contemplated by this Agreement and the Stock
Option Agreement have been duly authorized by all necessary corporate action on
the part of Chartwell, subject to the Chartwell Stockholder Approval. This
Agreement and the Stock Option Agreement have been duly executed and delivered
by Chartwell and, assuming the due authorization, execution and delivery of this
Agreement and the Stock Option Agreement by Trenwick, constitute legal, valid
and binding obligations of Chartwell, enforceable against Chartwell in
accordance with their respective terms. The execution and delivery of this
Agreement and the Stock Option Agreement do not, and, subject to the Chartwell
Stockholder Approval with respect to this Agreement, the consummation of the
transactions contemplated by
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this Agreement and the Stock Option Agreement and compliance with the provisions
of this Agreement and the Stock Option Agreement will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under, or result in the
creation of any Lien upon any of the properties or assets of Chartwell or any of
its subsidiaries under, (i) the Certificate of Incorporation or By-laws of
Chartwell or the comparable organizational documents of any of its subsidiaries,
(ii) subject to the matters referred to in Section 3.1(d) of the Chartwell
Disclosure Schedule and the matters referred to in the sentence following the
next sentence, any indenture or other material agreement, permit, franchise,
license or instrument to which Chartwell or any of its subsidiaries is a party
or by which Chartwell or any of its subsidiaries or any of their assets is bound
or affected, or (iii) subject to the matters referred to in the sentence
following the next sentence, any statute, law, ordinance, rule, regulation,
order, judgment, injunction, decree, determination or award applicable to
Chartwell or any of its subsidiaries or any of their respective properties or
assets, other than, in the case of clause (ii) above, any such conflicts,
violations, defaults, rights, losses or Liens that individually or in the
aggregate would not (x) have a Material Adverse Effect on Chartwell or (y)
reasonably be expected to impair materially the ability of Chartwell to perform
its obligations under this Agreement and the Stock Option Agreement. Assuming
the conditions set forth in Section 3.1(d) of the Chartwell Disclosure Schedule
are met, the Merger and the other transactions contemplated hereby will not
constitute a "change of control" under the Contingent Interest Notes due June
30, 2006 or the Indenture dated as of December 1, 1995 (the "Contingent Interest
Notes Indenture") between Chartwell, as the successor to Piedmont Management
Company Inc. and State Street Bank and Trust Company, as successor to Fleet
National Bank of Connecticut, as Trustee. No consent, approval, order, or
authorization of, action by or in respect of, or registration, declaration or
filing with any federal, state, local or foreign government, any court, tribunal
or administrative, governmental or regulatory authority or agency or commission
or any non-governmental self-regulatory agency, commission or authority (each, a
"Governmental Entity"), or of the Society and Corporation of Lloyd's of London
("Lloyd's"), is required by or with respect to Chartwell or any of its
subsidiaries in connection with the execution and delivery of this Agreement and
the Stock Option Agreement by Chartwell or the consummation by Chartwell of the
transactions contemplated hereby, except for (A) in connection with or in
compliance with the provisions of (1) the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (2) the Securities Act of
1933, as amended (the "Securities Act"), (3) the Exchange Act, (4) the DGCL, (5)
the New York Stock Exchange, Inc. (the "NYSE"), (6) any non-United States
competition, antitrust and investment laws, and the securities or "blue sky"
laws of the various states, (7) the approvals, filings and notices required
under the insurance laws of the jurisdictions in which Chartwell transacts the
business of insurance or reinsurance; (8) the filing of the certificate of
merger with the Delaware Secretary of State and appropriate documents with the
relevant authorities of other states in which Chartwell is qualified to do
business, (9) any required consents and waivers of Lloyd's and (B) such other
consents, approvals, orders, authorizations, actions, registrations,
declarations, filings or notices (as may be required) the failure of which to be
made or obtained individually or in the aggregate would not have a Material
Adverse Effect on Chartwell.
(e) SEC Documents; Financial Statements. (i) Chartwell has timely filed all
required forms, reports, schedules, statements and other documents (including
exhibits and all
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other information incorporated therein) with the SEC since January 1, 1996.
Chartwell has delivered or made available to Trenwick all registration
statements, proxy statements, annual reports, quarterly reports and reports on
Form 8-K and other forms, reports and documents, if any, filed by Chartwell with
the SEC since January 1, 1996 (as such documents have been amended since the
time of their filing, collectively, the "Chartwell SEC Documents"). As of their
respective dates or, if amended, as of the date of the last such amendment, the
Chartwell SEC Documents (i) were timely filed and complied as to form in all
material respects with the applicable requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Chartwell SEC Documents, and (ii) did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The consolidated financial statements of Chartwell included in the
Chartwell SEC Documents complied as to form, as of their respective dates of
filing with the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited consolidated quarterly statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present in all material respects the consolidated financial position of
Chartwell and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited quarterly statements, to normal
year-end adjustments).
(ii) Chartwell has previously furnished to Trenwick true and complete copies of
the annual statements for each of the years ended December 31, 1996, December
31, 1997, and December 31, 1998, together with all exhibits and schedules
thereto (collectively, the "Annual Statements"), with respect to each of
Chartwell Reinsurance Company, The Insurance Corporation of New York, Dakota
Specialty Insurance Company and ReCor Insurance Company Inc. (each, an
"Insurer"), in each case as filed with the Governmental Entity charged with
supervision of insurance companies of such Insurer's jurisdiction of domicile
(the "Insurance Regulator"). The Annual Statements were prepared in conformity
with statutory accounting practices prescribed or permitted by such Insurance
Regulator applied on a consistent basis ("SAP") and present fairly, to the
extent required by and in conformity with SAP in all material respects the
statutory financial condition of such Insurer at their respective dates and the
results of operations, changes in capital and surplus and cash flow of such
Insurer for each of the periods then ended. Except as set forth in Section
3.1(e) of the Chartwell Disclosure Schedule, no deficiencies or violations
material to the financial condition of any of the Insurers, individually,
whether or not material in the aggregate, have been asserted in writing by any
Insurance Regulator which have not been cured or otherwise resolved to the
satisfaction of such Insurance Regulator (unless not currently pending).
Chartwell has made available to Trenwick true and complete copies of all
financial examination reports of state insurance departments since January 1,
1996 relating to each Insurer. The quarterly statements of each Insurer for the
quarter ending March 31, 1999 as filed and the quarterly statements of each
Insurer thereafter filed prior to the Closing, when filed with the insurance
regulatory authorities of the applicable states, presented and will present
fairly, to the extent required by and in conformity with SAP in all material
respects the statutory financial condition of such Insurer at their respective
dates
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indicated and the results of operations, changes in capital and surplus and cash
flow of such Insurer for each of the periods therein specified (subject to
normal year-end adjustments).
(iii) The Annual Report and Accounts and the Syndicate Quarterly Reports
together with all exhibits and schedules thereto, of each of Lloyd's Syndicates
44, 270, 544, 741/2741, 839, 947 and 994 (collectively, "Chartwell Syndicates")
as of and for each of the years ended December 31, 1996, 1997 and 1998 and for
the quarter ended March 31, 1999 (x) have been prepared in all material respects
in accordance with the applicable requirements of the Syndicate Accounting Rules
of Lloyd's and (y) other than as to Chartwell Syndicate 947 show a true and fair
view in accordance with the foregoing requirements and standards, in all
material respects of the 1996 closed year of account profit with respect to the
Chartwell Syndicates.
(f) Information Supplied. None of the information supplied or to be supplied by
Chartwell for inclusion or incorporation by reference in (i) the registration
statement on Form S-4 to be filed with the SEC by Trenwick in connection with
the issuance of Trenwick Common Stock in the Merger (the "Form S-4") will, at
the time the Form S-4 is filed with the SEC, at any time it is amended or
supplemented or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they are made, not misleading or (ii)
the filing with the SEC of a proxy statement relating to the Chartwell
Stockholder Approval and the proxy statement relating to the Trenwick
Stockholder Approval, in each case as amended or supplemented from time to time,
(the "Joint Proxy Statement") will, at the date it is first mailed to
Chartwell's stockholders or at the time of the Chartwell Stockholders Meeting
(as defined in Section 5.2), contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Joint Proxy Statement will comply as to form
in all material respects with the requirements of the Exchange Act and the rules
and regulations promulgated thereunder. Notwithstanding the foregoing, no
representation or warranty is made by Chartwell in this Section 3.1(f) with
respect to information supplied by Trenwick for inclusion or incorporation by
reference in the Joint Proxy Statement.
(g) Absence of Certain Changes or Events. Except in connection with this
Agreement, the Stock Option Agreement and the transactions contemplated hereby,
as disclosed in the Chartwell SEC Documents filed and publicly available prior
to the date of this Agreement (the "Filed Chartwell SEC Documents") or in
Section 3.1(g) of the Chartwell Disclosure Schedule, since the date of the most
recent audited financial statements included in the Filed Chartwell SEC
Documents, Chartwell and its subsidiaries have conducted their business in the
ordinary course consistent with past practice, and there has not occurred (i)
any event or change having individually or in the aggregate a Material Adverse
Effect on Chartwell, (ii) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with respect
to any of Chartwell's outstanding capital stock, other than regular quarterly
cash dividends of $.04 per share on the Chartwell Common Stock and dividends
paid by wholly owned subsidiaries, (iii) (A) any granting by Chartwell or any of
its subsidiaries to any current or former director or officer of Chartwell or
its subsidiaries of any increase in compensation, bonus or other benefits,
except for normal increases in the ordinary course of
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business or as was required under any employment agreements or benefit plan
listed in Section 3.1(h) of the Chartwell Disclosure Schedule, (B) any granting
by Chartwell or any of its subsidiaries to any such current or former director
or officer of any increase in severance or termination pay except as was
required under any agreement listed in Section 3.1(h) of the Chartwell
Disclosure Schedule or (C) any entry by Chartwell or any of its subsidiaries
into, or any amendments of, any employment, deferred compensation, consulting,
severance, termination or indemnification agreement with any such current or
former director or officer, (iv) any tax election that individually or in the
aggregate would have a Material Adverse Effect on Chartwell or any of its tax
attributes or any settlement or compromise of any material income tax liability,
or (v) any change in accounting principles or practices by Chartwell or any of
its subsidiaries materially affecting their assets, liabilities or business,
except insofar as may have been required or permitted by a change in applicable
accounting principles (including SAP).
(h) Benefit Plans. (A) (i) Each "employee benefit plan" (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and each other plan, arrangement or policy, whether written or oral,
relating to stock options, stock purchases, stock appreciation rights, profit
sharing, group insurance, vacation pay, leave of absence, dependent care,
cafeteria benefits, workers compensation, consulting, pension, retirement,
compensation, deferred compensation, severance, fringe benefits or other
employee benefits, in each case maintained or contributed to, or required to be
maintained or contributed to, by Chartwell or any of its subsidiaries for the
benefit of any present or former U.S. officer, employee or director of Chartwell
or any of its subsidiaries (all the foregoing collectively referred to
hereinafter as "Chartwell Benefit Plans") has been administered substantially in
accordance with its terms and any related trust agreement or insurance contract
has been administered substantially in accordance with its terms. Chartwell, its
subsidiaries and all the Chartwell Benefit Plans, and any related trust
agreements or insurance contracts, are in substantial compliance with the
applicable provisions of ERISA, the Code, all other applicable laws and all
applicable collective bargaining agreements.
(ii) None of Chartwell or any other person or entity that together with
Chartwell is treated as a single employer under Section 414 of the Code (each a
"Chartwell Commonly Controlled Entity") has incurred any material liability
under Title IV of ERISA (other than for the payment of benefits or the timely
payment of Pension Benefit Guaranty Corporation insurance premiums, in either
case in the ordinary course) or under Section 412(f) or 412(n) of the Code, and
no condition exists which could reasonably be expected to present a risk of
Chartwell or any Commonly Controlled Entity incurring such a material liability.
(iii) Neither Chartwell nor any Chartwell Commonly Controlled Entity is
obligated to contribute to any "multiemployer plan" (as defined in Section 3(37)
or Section 4001(a)(3) of ERISA) or has any material liability, including current
or potential withdrawal liability (within the meaning of Section 4201 of ERISA)
with respect to any multiemployer plan.
(iv) Except as contemplated by Section 2.4 or as disclosed in the Filed
Chartwell SEC Documents or in Section 3.1(h) of the Chartwell Disclosure
Schedule, since the date of the most recent audited financial statements
included in the Filed Chartwell SEC Documents, there has not been any adoption
or amendment by Chartwell or any of its
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subsidiaries of any collective bargaining agreement or any Chartwell Benefit
Plan. Except as disclosed in the Filed Chartwell SEC Documents or in Section
3.1(h) of the Chartwell Disclosure Schedule, there exist no employment,
consulting, change in control, severance, termination or indemnification
agreements, arrangements or understandings between Chartwell or any subsidiary
and any current or former employee, officer or director of Chartwell or any
subsidiary or any Chartwell Benefit Plan.
(v) Except as set forth in Section 3.1(h) of the Chartwell Disclosure Schedule,
all material contributions and other payments required to be made by Chartwell
and its subsidiaries to any Chartwell Benefit Plan prior to the date hereof have
been made and all accruals required to be made under any Chartwell Benefit Plan
have been made. There is no claim, dispute, grievance, charge, complaint,
restraining or injunctive order, litigation or proceeding pending, or, to the
knowledge of Chartwell, threatened or anticipated (other than routine claims for
benefits) against or relating to any Chartwell Benefit Plan or against the
assets of any Chartwell Benefit Plan which could reasonably be expected to
result in the imposition of any material liability of Chartwell. Neither
Chartwell nor any of its subsidiaries has communicated generally to employees or
specifically to any employee regarding any future increase of benefit levels (or
future creations of new benefits) with respect to any Chartwell Benefit Plans.
(vi) Each Chartwell Benefit Plan can be terminated or otherwise discontinued
without any liability to Chartwell or any subsidiary that would reasonably be
expected to have a Material Adverse Effect. With respect to each Chartwell
Benefit Plan subject to Title IV of ERISA and with respect to each plan of a
Chartwell Commonly Controlled Entity subject to Title IV of ERISA (each a
"Defined Benefit Plan") (i) no termination of any Defined Benefit Plan has
occurred pursuant to which all liabilities have not been satisfied in full, and
no event has occurred and no condition exists that could reasonably be expected
to result in Chartwell or any Chartwell Commonly Controlled Entity incurring
liability under Title IV of ERISA or could constitute grounds for terminating
any Defined Benefit Plan; (ii) each Defined Benefit Plan which is subject to
Part 3 of Subtitle B of Title I of ERISA or Section 412 of the Code, has been
maintained in compliance with the minimum funding standards of ERISA and the
Code and no such Defined Benefit Plan has incurred any "accumulated funding
deficiency," as defined in Section 412 of the Code and Section 302 of ERISA,
whether or not waived; (iii) neither Chartwell nor any Chartwell Commonly
Controlled Entity has sought or received a waiver of its funding requirements
with respect to any Defined Benefit Plan and all material contributions payable
with respect to each Defined Benefit Plan have been timely made; (iv) no
reportable event, within the meaning of Section 4043 of ERISA, and no event
described in Section 4062 or 4063 of ERISA, has occurred with respect to any
Defined Benefit Plan; (v) the aggregate accumulated benefit obligations of each
Defined Benefit Plan subject to Title IV of ERISA (as of the date of the most
recent actuarial valuation prepared for such Defined Benefit Plan) do not exceed
the fair market value of the assets of such Defined Benefit Plan (as of the date
of such valuation); and (vi) no amendment has been made to any Defined Benefit
Plan that has required or would require the provision of security under ERISA
Section 307 or Code Section 401(a)(29).
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(vii) The execution, delivery and performance of this Agreement and the
transactions contemplated hereby will not in and of themselves result in the
imposition of any federal excise tax with respect to any Chartwell Benefit Plan.
(viii) Neither Chartwell nor any subsidiary maintains or contributes (or has
maintained or contributed to) any Chartwell Benefit Plan which provides, or has
a liability to provide, life insurance, medical, severance, or other employee
welfare benefits to any employee upon his retirement or termination of
employment, except as may be required by Section 4980B of the Code.
(ix) Neither Chartwell nor any of its subsidiaries maintains or contributes to a
trust, organization or association described in any of the Sections 501(c)(9),
501(c)(17) or 501(c)(2) of the Code.
(x) Favorable determination letters have been received from the Internal Revenue
Service with respect to each Chartwell Benefit Plan which is intended to comply
with the provisions of Section 401(a) of the Code, and each such Chartwell
Benefit Plan complies in form and in operation in all material respects with the
requirements of a "qualified plan" under Section 401(a) of the Code.
(xi) Neither Chartwell nor any of its subsidiaries, nor any of their respective
directors, officers, employees or, to the knowledge of Chartwell, any other
"fiduciary," as such term is defined in Section 3(21) of ERISA, has any
liability for failure to comply with ERISA or the Code for any action or failure
to act in connection with the administration or investment of the Chartwell
Benefit Plans.
(xii) There has been no act or acts which would result in a disallowance of a
deduction or the imposition of a tax pursuant to Section 4980B, or with regard
to plan years beginning before December 31, 1988, Section 162(i) of the Code as
in effect immediately prior to the enactment of the Technical and Miscellaneous
Revenue Act of 1988, or any regulations promulgated thereunder, whether final,
temporary or proposed. No event has occurred with respect to which Chartwell or
any of its subsidiaries could be liable for a tax imposed by Chapter 43 of
Subtitle A of the Code, or for a civil penalty or other liability under Section
502(c) or Section 501(l) of ERISA. Each Chartwell Benefit Plan that is a "group
health plan" as defined in Section 607 of ERISA complies in all material
respects and has been operated in substantial compliance in all respects with
Part 7 of Title I, Subtitle B of ERISA and Subtitle K of the Code.
(xiii) With respect to each of the Chartwell Benefit Plans, Chartwell has
delivered to Trenwick true and complete copies of: (a) the plan documents,
including any related trust agreements, insurance contracts or other funding
arrangements, or a written summary of the terms and conditions of the plan if
there is no written plan document; (b) the most recent determination letter
received from the Internal Revenue Service; (c) the most recent IRS Form 5500;
(d) the most recent actuarial valuation; (e) the most recent financial
statement; (f) all material correspondence with the Internal Revenue Service,
the Department of Labor and the Pension Benefit Guaranty Corporation with
respect to the past three plan years other than IRS
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Form 5500 filings and PBGC premium payments; and (g) the most recent summary
plan description.
(B) Except as would not have a Material Adverse Effect on Chartwell and save as
disclosed in Section 3.1(h) of the Chartwell Disclosure Schedule or as
previously disclosed in writing to Trenwick and so far as the senior management
of Chartwell UK Holding as hereinafter defined (and for this purpose the senior
management means the following individuals: Steven Bensinger, Charles Myers,
Jeremy Adams, Clive Daniels, Verity Lewis and David Marshall) are aware:
(i) There is no existing or threatened or pending industrial or trade dispute
involving Chartwell Holding Limited ("Chartwell UK Holding") or any of its
subsidiaries and any of the employees of Chartwell UK Holding or any of its
subsidiaries and there are no facts known or which would on reasonable inquiry
be known to Chartwell UK Holding or any of its subsidiaries which might indicate
that there may be any such dispute (excluding the Merger and the transactions
contemplated by this Agreement). There are no agreements or arrangements
(whether oral or in writing or existing by reason of custom and practice and
whether or not legally binding) between Chartwell UK Holding or any of its
subsidiaries and any trade union or other employees' representatives or
organization concerning or affecting the employees of Chartwell UK Holding or
any of its subsidiaries and there are no trade unions or other employees'
representatives whom Chartwell UK Holding or any of its subsidiaries recognizes
to any extent for collective bargaining purposes nor, so far as each of
Chartwell UK Holding and its subsidiaries is aware, has Chartwell UK Holding or
any of its subsidiaries done any act which might be construed as recognition.
(ii) Neither Chartwell UK Holding nor its subsidiaries has given notice of any
redundancies to the U.K. Secretary of State nor started consultations with any
independent trade union or employees' representatives within the preceding
period of one year in relation to any of employees of Chartwell UK Holding or
any of its subsidiaries. No circumstances have arisen under which Chartwell UK
Holding or any of its subsidiaries is likely to be required to pay damages for
wrongful dismissal or breach of contract, to make any contractual or statutory
redundancy payment or make or pay any compensation in respect of unfair
dismissal, to make any other payment under any employment protection legislation
or to reinstate or re-engage any former employee. No circumstances have arisen
under which Chartwell UK Holding or any of its subsidiaries is likely to be
required to pay damages or compensation, or suffer any penalty or be required to
take corrective action or be subject to any form of discipline under the
Employment Rights Act 1996, the Trade Union and Labour Relations (Consolidation)
Act 1992, the Transfer of Undertakings (Protection of Employment) Regulations
1981, the Sex Discrimination Act 1975, the Equal Pay Act 1970, the Treaty of
Rome or any Directive or recommendation made pursuant to it, the Race Relations
Act 1976 or the Disability Discrimination Act 1995. So far as each of Chartwell
UK Holding and its subsidiaries is aware, there are no current, pending or
threatened claims of any type against Chartwell UK Holding or any of its
subsidiaries by any existing or former employees or directors of Chartwell UK
Holding or any of its subsidiaries or by any existing or former consultants to
Chartwell UK Holding or any of its subsidiaries.
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(iii) There are no existing service or other agreements or contracts between
Chartwell UK Holding or any of its subsidiaries and any of its directors or
executives or employees which cannot be lawfully terminated by six calendar
months' notice or less without giving rise to any claim for damages or
compensation other than a statutory redundancy payment or a claim for unfair
dismissal depending on the circumstances of the termination. Each of Chartwell
UK Holding and its subsidiaries has complied with all its material obligations
under all legislation, regulations and other requirements having the force of
law (including, without limitation, orders and awards) in connection with its
employees, directors and consultants.
(iv) Neither Chartwell UK Holding nor any of its subsidiaries is involved in
negotiations (whether with employees or any trade union or other employees'
representatives) to vary the terms and conditions of employment or engagement of
any of its employees, directors or consultants and has not made any
representations, promises, offers or proposals to any of its employees,
directors or consultants or to any trade union or other employees'
representatives concerning or affecting the terms and conditions of employment
or engagement of any of its employees, directors or consultants.
(v) Each of Chartwell UK Holding and its subsidiaries has discharged its
obligations in full in relation to salary, wages, fees, commission, bonuses,
overtime pay, holiday pay, sick pay and all other benefits and emoluments
relating to its employees, consultants and directors in respect of all prior
periods.
(vi) There are no pension, share option, share incentive, life assurance,
disability or similar schemes, arrangements or obligations for any employees or
directors of Chartwell UK Holding or any of its subsidiaries, and neither
Chartwell UK Holding nor any of its subsidiaries has obligations (whether
legally binding or established by custom) to pay any pension or make any other
payment after retirement or death or otherwise to provide "relevant benefits"
within the meaning of section 612 of the U.K. Income and Corporation Taxes Act
1988 or to make any payment for the purpose of providing such "relevant
benefits" to or in respect of any person who is now or has been an officer or
employee of Chartwell UK Holding or any of its subsidiaries and is not a party
to any scheme or arrangement having as its purpose or one of its purposes the
making of such payments or the provision of such benefits.
(vii) All Retirement Benefits Schemes comply with and have at all times complied
with the provisions of the relevant legislation and the requirements of the
Pension Schemes Office and the Contributions Agency affecting schemes approved
under Chapter I of Part XIV of the U.K. Income and Corporation Taxes Act 1988.
Each of Chartwell UK Holding and its subsidiaries and the trustees of such
schemes have duly complied with their respective obligations under the trust
deeds and the rules thereof and under the aforementioned legislation and
requirements, except that the accounts prepared to 31 December 1997 may not
conform to the requirements of the Pensions Act 1995. All amounts due to the
trustees thereof or to any insurance company in connection therewith have been
paid.
(viii) Neither Chartwell UK Holding nor any of its subsidiaries nor the trustees
of any pension scheme is engaged in any litigation or arbitration proceedings in
respect of any Retirement Benefits Scheme or any benefit provided thereunder in
relation to the
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employees or former employees of Chartwell UK Holding or any of its subsidiaries
and there are no current submissions or referrals to the Pensions Ombudsman or
to the Occupational Pensions Advisory Service in respect of Chartwell UK Holding
or any of its subsidiaries or any pension scheme.
(ix) No Retirement Benefits Scheme in which employees or former employees of
Chartwell UK Holding or any of its subsidiaries participate or have participated
has been or is in the process of being (or is proposed to be) wound up (in whole
or in part) or closed to new entrants (in whole or in part).
(i) Taxes. (i) Chartwell is the common parent of an affiliated group of
corporations (within the meaning of Section 1504(a) of the Code) eligible to
file consolidated federal income tax returns, of which each of the subsidiaries
that is an includible corporation under Section 1504(b) of the Code is a member;
(ii) except as set forth in Section 3.1(i)(ii) of the Chartwell Disclosure
Schedule, Chartwell and each of its subsidiaries have filed (or joined in the
filing of) when due all material tax returns required by applicable law to be
filed with respect to Chartwell or any of the subsidiaries and all taxes shown
to be due on such tax returns have been paid;
(iii) all such tax returns were true, correct and complete as of the time of
such filing;
(iv) all material taxes relating to periods ending on or before the Effective
Time owed by Chartwell or any of its subsidiaries (whether or not shown on any
tax return) or to which Chartwell or any of its subsidiaries may be liable under
Treasury Regulations sec. 1.1502-6 (or analogous state or foreign provisions) by
virtue of having been a member of any "affiliated group" (or other group filing
on a combined or unitary basis) at any time on or prior to the Effective Time,
if required to have been paid, have been paid (except for taxes which are being
contested in good faith);
(v) any liability of Chartwell or any of its subsidiaries for material taxes not
yet due and payable, or which are being contested in good faith, has been
provided for on the financial statements of Chartwell in accordance with
generally accepted accounting principles;
(vi) except as set forth in Section 3.1 (i)(vi) of the Chartwell Disclosure
Schedule, there is no action, suit, proceeding, investigation, audit or claim
now pending against, or with respect to, Chartwell or any of its subsidiaries in
respect of any material tax or assessment, nor is any claim for additional tax
or assessment asserted by any tax authority;
(vii) since January 1, 1991, no claim has been made by any tax authority in a
jurisdiction where Chartwell or any of its subsidiaries does not currently file
a tax return that it is or may be subject to any material tax by such
jurisdiction, nor to Chartwell's knowledge is any such assertion threatened;
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(viii) except as set forth in Section 3.1(i)(viii) of the Chartwell Disclosure
Schedule, there is no outstanding request by Chartwell or any of its
subsidiaries for any extension of time within which to pay any taxes or file any
tax returns;
(ix) except as set forth in Section 3.1(i)(ix) of the Chartwell Disclosure
Schedule, there has been no waiver or extension of any applicable statute of
limitations for the assessment or collection of any taxes of Chartwell or any of
its subsidiaries;
(x) no property of Chartwell or any of its subsidiaries is "tax-exempt use
property" within the meaning of Section 168(h) of the Code;
(xi) neither Chartwell nor any of its subsidiaries is a party to any lease made
pursuant to former Section 168(f)(8) of the Internal Revenue Code of 1954;
(xii) no excess loss account (within the meaning of Treasury Regulations sec.
1.1502-19) exists with respect to any of Chartwell's subsidiaries;
(xiii) neither Chartwell nor any of its subsidiaries has any deferred gain or
loss arising from any intercompany transactions, within the meaning of Treasury
Regulations sec. 1.1502-13;
(xiv) neither Chartwell nor any of its subsidiaries has filed any agreement or
consent under Section 341(f) of the Code;
(xv) except as set forth in Section 3.1(i)(xv) of the Chartwell Disclosure
Schedule, neither Chartwell nor any of its subsidiaries is a party to any
agreement, whether written or unwritten, providing for the payment of taxes,
payment for tax losses, entitlements to refunds or similar tax matters;
(xvi) no ruling with respect to taxes (other than a request for determination of
the status of a qualified pension plan) has been requested by or on behalf of
Chartwell or any of its subsidiaries;
(xvii) neither Chartwell nor any of its subsidiaries has been a United States
real property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code;
(xviii) Chartwell and each of its subsidiaries have withheld and paid all
material taxes required to be withheld in connection with any amounts paid or
owing to any employee, creditor, independent contractor or other third party;
(xix) neither Chartwell nor any of its subsidiaries has taken any action or
knows of any fact, agreement, plan or other circumstance that is reasonably
likely to prevent the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code; and
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(xx) As used in this Agreement, "taxes" shall include all (x) federal, state,
local or foreign income, premium, property, sales, excise and other taxes or
similar governmental charges, including any interest, penalties or additions
with respect thereto, (y) liability for the payment of any amounts of the type
described in (x) as a result of being a member of an affiliated, consolidated,
combined or unitary group, and (z) liability for the payment of any amounts as a
result of being party to any tax sharing agreement or as a result of any express
or implied obligation to indemnify any other person with respect to the payment
of any amounts of the type described in clause (x) or (y).
(j) No Excess Parachute Payments; Section 162(m) of the Code. (i) Except as
disclosed in Section 3.1(j) of the Chartwell Disclosure Schedule, none of the
transactions contemplated by this Agreement shall constitute a triggering event
under any employment, severance or termination agreement or other compensation
arrangement or Benefit Plan currently in effect which (either alone or upon the
occurrence of any additional or subsequent event) could reasonably be expected
to result in any payment, acceleration, vesting or increase in benefits to any
current or former officer, employee or director of Chartwell or any of its
subsidiaries and which would constitute an "excess parachute payment" (as such
term is defined in Section 280G(b)(1) of the Code); and
(ii) Except as disclosed in Section 3.1(j) of the Chartwell Disclosure Schedule,
the disallowance of a deduction under Section 162(m) of the Code for employee
remuneration will not apply to any amount paid or payable by Chartwell or any
subsidiary of Chartwell under any contract, Chartwell Benefit Plan, program,
arrangement or understanding currently in effect.
(k) Compliance with Applicable Laws. Chartwell and its subsidiaries have in
full force and effect all approvals, authorizations, certificates, consents,
filings, franchises, licenses, notices, permits and rights of all Governmental
Entities (including Insurance Regulators) (collectively, "Permits") necessary
for them to own, lease or operate their respective properties and assets and to
carry on their respective business as now conducted, and there has occurred no
default under any such Permit, except for failures of Permits to be in full
force and effect and for defaults under Permits which individually or in the
aggregate would not have a Material Adverse Effect on Chartwell. Except as
disclosed in the Filed Chartwell SEC Documents, Chartwell and its subsidiaries
are in compliance with all applicable statutes, laws, ordinances, rules,
regulations and orders of any Governmental Entity, except for such noncompliance
which individually or in the aggregate would not have a Material Adverse Effect
on Chartwell. Chartwell and its subsidiaries are in compliance with all
applicable recommendations and requirements of the Underwriting Agency
Department of Lloyd's, except for such noncompliance which individually or in
the aggregate would not have a Material Adverse Effect on Chartwell.
(l) Litigation. Except as disclosed in the Chartwell SEC Documents or in
Section 3.1(l) of the Chartwell Disclosure Schedule, there is no suit, action,
proceeding or arbitration (excluding those arising in the ordinary course of
business relating to policies of insurance or reinsurance written by Chartwell
and its subsidiaries) pending or, to the knowledge of Chartwell, threatened
against or affecting Chartwell or any of its subsidiaries or any of their
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respective properties or assets that individually or in the aggregate could
reasonably be expected to (i) have a Material Adverse Effect on Chartwell, (ii)
impair the ability of Chartwell to perform its obligations under this Agreement
or (iii) prevent the consummation of any of the transactions contemplated by
this Agreement, nor is there any judgment, writ, decree, injunction or order of
any Governmental Entity or arbitrator outstanding against Chartwell or any of
its subsidiaries having, or which could be reasonably expected to have any such
effect.
(m) No Undisclosed Liabilities. Except (i) as disclosed in Section 3.1(m) of
the Chartwell Disclosure Schedule, (ii) as disclosed in the Filed Chartwell SEC
Documents, (iii) obligations for losses, loss adjustment expenses, unearned
premiums and reinsurance premiums under reinsurance and insurance contracts
entered into by Chartwell and its subsidiaries and (iv) as a result of any
transaction set forth in Section 4.1 of the Chartwell Disclosure Schedule or
which has been approved in writing by Trenwick, none of Chartwell or its
subsidiaries has any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, and whether due or to become due or asserted
or unasserted which, individually or in the aggregate, would have a Material
Adverse Effect on Chartwell.
(n) Reserves. (i) All reserves for claims, losses (including, without
limitation, incurred but not reported losses) and loss adjustment expenses
(whether allocated or unallocated) as reflected in the Annual Statement of each
Insurer for each of the years ended December 31, 1996, December 31, 1997 and
December 31, 1998, together with all exhibits and schedules thereto (a) were
determined in accordance with SAP and commonly accepted actuarial standards and
principles consistently applied and were fairly stated in accordance with sound
actuarial principles specified by the Actuarial Standards Board, (b) meet the
requirements of all applicable insurance laws, rules, and regulations of each
applicable jurisdiction in all material respects, and (c) were based on
actuarial assumptions which were in accordance with those called for in relevant
policy and contract provisions, and such reserves made reasonable provision in
the aggregate to cover the total amount of liabilities under all outstanding
policies and contracts of insurance, reinsurance and retrocession as of the
dates of such statutory statements (it being understood that no representation
or warranty is made in this Agreement to the effect that such reserves were in
fact adequate to cover the actual amount of such liabilities that are eventually
paid after the date thereof). Each Insurer owns assets that qualify as admitted
assets under applicable insurance laws and regulations in an amount at least
equal to all such required reserves plus its minimum statutory capital and
surplus as required under applicable insurance laws, rules and regulations. No
Insurer's reserves have been discounted on either a tabular or non-tabular
basis.
(ii) All net reserves for claims, losses (including, without limitation,
incurred but not reported losses) and loss adjustment expenses (whether
allocated or unallocated) held with respect to Chartwell Syndicates as reflected
in the audited financial statements of Chartwell for each of the years ended
December 31, 1997 and December 31, 1998 (a) were determined in accordance with
GAAP and commonly accepted actuarial standards and principles consistently
applied and were fairly stated in accordance with sound actuarial principles
specified by the Actuarial Standards Board and (b) were based on actuarial
assumptions which were in accordance with those called for in relevant policy
and contract provisions, and such reserves made reasonable provision in the
aggregate to cover the total amount of liabilities under
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all outstanding policies and contracts of insurance, reinsurance and
retrocession as of the dates of such audited financial statements (it being
understood that no representation or warranty is made in this Agreement to the
effect that such reserves were in fact adequate to cover the actual amount of
such liabilities that are eventually paid after the date thereof).
(o) Insurance Issued. Except as disclosed in Section 3.1(o) of the Chartwell
Disclosure Schedule:
(i) All in-force primary insurance policies issued by any Insurer are, to the
extent required under applicable insurance laws, rules or regulations, on forms
and at rates approved by the insurance regulatory authority of the jurisdiction
where issued or have been filed with and not objected to by such authority
within the period provided for objection, except as would not individually or in
the aggregate have a Material Adverse Effect on Chartwell.
(ii) To the knowledge of Chartwell, except as would not individually or in the
aggregate have a Material Adverse Effect on Chartwell, each insurance agent or
solicitor, including, without limitation, salaried employees of Chartwell or any
Insurer appointed by any Insurer as an insurance agent or solicitor, at the time
such agent or solicitor wrote, sold, solicited or produced business for such
Insurer since January 1, 1996, was duly licensed as an insurance agent (for the
type of business written, sold, solicited or produced by such insurance agent or
solicitor in the particular jurisdiction in which such agent or solicitor wrote,
sold, solicited or produced such business).
(p) Opinion of Financial Advisor. Chartwell has received the opinion of
Goldman, Sachs & Co. dated as of the date of this Agreement to the effect that
the Conversion Number is fair to the stockholders of Chartwell from a financial
point of view.
(q) Voting Requirements. The affirmative vote of holders of a majority of the
shares of Chartwell Common Stock (with each share of Chartwell Common Stock
having one vote per share) to approve and adopt this Agreement and the Merger
(the "Chartwell Stockholder Approval") is the only vote of the holders of any
class or series of the capital stock of Chartwell necessary to approve and adopt
this Agreement and the Merger and the transactions contemplated hereby.
(r) Rights Agreement; Section 203. Chartwell and its Board of Directors have
amended the Rights Agreement (without redeeming the Rights) so that the
execution and delivery of this Agreement, the Stock Option Agreement or the
consummation of the Merger will not (i) cause any of the Rights to become
exercisable, (ii) cause Trenwick to be an Acquiring Person (as defined in the
Rights Agreement) or (iii) trigger other provisions of the Rights Agreement,
including giving rise to a Distribution Date (as defined in the Rights
Agreement), and the Expiration Date (as defined in the Rights Agreement) of the
Rights shall occur immediately prior to the Effective Time. Such amendment shall
be in full force and effect from and after the date hereof. Chartwell has taken
all corporate action necessary to render inapplicable to the Merger, this
Agreement, the Stock Option Agreement and the other transactions contemplated
hereby, the provisions of Section 203 of the DGCL.
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(s) Brokers. No broker, investment banker, financial advisor or other person,
other than Goldman, Sachs & Co., the fees and expenses of which will be paid by
Chartwell, is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Chartwell. Except
as set forth in Section 3.1(s) of the Chartwell Disclosure Schedule, Chartwell
has furnished to Trenwick true and complete copies of all agreements under which
any such fees or expenses are payable and all indemnification and other
agreements related to the engagement of the persons to whom such fees are
payable.
(t) No Default. Except as disclosed in the Chartwell SEC Documents, the
business of Chartwell and each of its subsidiaries is not being conducted in
default or violation of any term, condition or provision of (i) its respective
certificate of incorporation or by-laws or similar organizational documents, or
(ii) any company agreement, excluding from the foregoing clause (ii), defaults
or violations that would not have a Material Adverse Effect on Chartwell or
would not materially impair the ability of Chartwell to consummate the Merger or
the other transactions contemplated hereby.
(u) Related Party Transactions. Except as set forth in Section 3.1(u) of the
Chartwell Disclosure Schedule, all transactions, agreements, arrangements or
understandings between Chartwell or any of Chartwell's subsidiaries, on the one
hand, and Chartwell's affiliates (other than wholly-owned subsidiaries of
Chartwell) or other Persons, on the other hand, that are required to be
disclosed in the Chartwell SEC Documents in accordance with Item 404 of Schedule
S-K under the Securities Act have been so disclosed. Since March 31, 1999, there
have been no transactions, agreements, arrangements or understandings between
Chartwell or any of its subsidiaries, on the one hand, and Chartwell's
affiliates (other than wholly-owned subsidiaries of Chartwell) or other Persons,
on the other hand, that would be required to be disclosed in future public
filings under the Exchange Act pursuant to such Item which have not already been
disclosed in the Chartwell SEC Documents filed prior to the date hereof.
(v) Title to Property. (i) Except as set forth in Section 3.1(v) of the
Chartwell Disclosure Schedule, Chartwell and its subsidiaries have good and
valid title to, have valid leasehold interests in or valid contractual rights to
use, all of the assets, tangible and intangible, used by or necessary for the
conduct of, their business, except where the failure to have such good and valid
title, valid leasehold interests or such valid contractual rights do not,
individually or in the aggregate, have a Material Adverse Effect on Chartwell.
(ii) Except as set forth in Section 3.1(v) of the Chartwell Disclosure Schedule,
Chartwell and its subsidiaries:
(a) own and have good and marketable title in fee simple to the real property
owned by such party, free and clear of all mortgages, pledges, liens, charges,
encumbrances, defects, security interests, claims, options and restrictions of
all kind except for (y) minor imperfections of title, easements and rights of
way, none of which individually or in the aggregate, materially detracts from
the value of or impairs the use of the affected property or impairs the
operations of
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Chartwell or any of its subsidiaries and (z) liens for current taxes not yet due
and payable;
(b) is in peaceful and undisturbed possession of the space and/or estate under
each lease under which it is a tenant, and there are no material defaults by it
as tenant thereunder; and
(c) has good and valid rights of ingress and egress to and from all the real
property owned or leased by such party from and to the public street systems for
all usual street, road and utility purposes.
(w) Environmental. (i) Chartwell and its subsidiaries are in material
compliance with all applicable Environmental Laws.
(ii) To the knowledge of Chartwell, no facts, events or conditions with respect
to the operation of its business or the business of its subsidiaries, or the
locations of those businesses exist which could reasonably be expected to
interfere with or prevent continued compliance with, or could give rise to any
liability (including, without limitation, liability for clean up costs, personal
injury or property damage) or form the basis for any claim, action, suit,
proceeding, hearing or investigation against or involving Chartwell or any of
its subsidiaries or their respective businesses, under any applicable
Environmental Law.
(iii) Chartwell and its subsidiaries have not received any written notice,
report or other information regarding any actual or alleged violation of, or
liability under, Environmental Laws relating to Chartwell or its subsidiaries,
or the locations of the operation of their businesses, which violation or
liability could have a Material Adverse Effect on Chartwell.
(iv) There is no action, suit, claim, proceeding or investigation pending, or to
the knowledge of Chartwell, threatened against Chartwell or its subsidiaries
that alleges or would allege any violation of any applicable Environmental Laws.
(v) To the knowledge of Chartwell, neither Chartwell nor its subsidiaries has
ever generated, transported, treated, stored or disposed of any Hazardous
Material at any site, location or facility, and no such Hazardous Material is
present on, in or under any location occupied by Chartwell or its subsidiaries,
including without limitation, containment of such Hazardous Material by means of
any underground storage tank.
Notwithstanding the foregoing, this Section 3.1(w) does not include any
representation or warranty with respect to Chartwell or any of its subsidiaries
arising in their respective capacities as reinsurer or issuer of any insurance
product.
(x) Chartwell Investees. Section 3.1(x) of the Chartwell Disclosure Schedule
sets forth a list of certain corporations and other entities other than publicly
traded companies (collectively, the "Chartwell Investees") in which Chartwell or
a subsidiary has made an equity investment, and indicates the percentage of the
voting equity interests and total ownership interests in such Chartwell
Investees held by Chartwell and its subsidiaries as of the date hereof
(collectively, the "Chartwell Investee Interests"). Except as disclosed in
Section 3.1(x) of the Chartwell Disclosure Schedule, to the knowledge of
Chartwell, all Chartwell Investee Interests are fully paid and nonassessable and
are owned by Chartwell, by one or more subsidiaries of Chartwell or by Chartwell
and one or more subsidiaries, free and clear of all Liens. Except as disclosed
in Section 3.1(x) of the
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Chartwell Disclosure Schedule, to the knowledge of Chartwell, neither Chartwell
nor any of its subsidiaries is a party to or bound by any agreement, proxy or
other arrangement restricting the transfer or affecting the voting of any
Chartwell Investee Interest. Except as disclosed in Section 3.1(x) of the
Chartwell Disclosure Schedule, the executive officers of Chartwell do not know,
without inquiry, of any representation and warranty made with respect to a
subsidiary of Chartwell in Sections 3.1(d), (k) and (l) of this Agreement which
would not be true and correct in all material respects (or, with respect to
those representations and warranties that are qualified as to materiality, true
and correct) if the Chartwell Investees were each considered a subsidiary of
Chartwell for purposes of such representation and warranty, except for such
failures to be true and correct in all material respects (or true and correct,
as applicable) which would not reasonably be expected to have a Material Adverse
Effect on Chartwell.
(y) Reinsurance Contracts, Coverholders and MGAs. (i) Section 3.1(y) of the
Chartwell Disclosure Schedule contains a true and complete list of all managing
general agents of the Insurers (collectively, "MGAs"), coverholders with respect
to the Chartwell Syndicates ("Coverholders") with whom any Insurer or Chartwell
does business and all in force contracts, treaties or arrangements, regarding
ceding of reinsurance, coinsurance, excess insurance, or retrocession,
(collectively, "Reinsurance Contracts") to which any Insurer or Chartwell
Syndicate is a party as the cedent thereunder or by or to which any of them are
bound or subject as the cedent thereunder, as each such Reinsurance Contract may
have been amended, modified or supplemented. Except as would not, individually
or in the aggregate, have a Material Adverse Effect on Chartwell: (i) each of
the foregoing Reinsurance Contracts is valid and binding in accordance with its
terms, and is in full force and effect and (ii) none of the Insurers or Plaza Co
Syndicates nor, to the knowledge of Chartwell any other party thereto, is in
default in any material respect with respect to any such Reinsurance Contract,
nor to the knowledge of Chartwell does any condition exist that with notice or
lapse of time or both would constitute such a material default thereunder.
Except as set forth in Section 3.1(y) of the Chartwell Disclosure Schedule, none
of the contracts, treaties or arrangements involving the MGAs or Coverholders
contain "change of control" provisions and no such Reinsurance Contract contains
any provision providing that any such other party thereto may terminate, cancel
or commute the same by reason of the transactions contemplated by this Agreement
or any other provision which would be altered or otherwise become applicable by
reason of such transactions, and no party has given notice of termination,
cancellation or commutation of any such Reinsurance Contract or that it intends
to terminate, cancel or commute any such Reinsurance Contract as a result of the
transactions contemplated hereby; and
(ii) Except as set forth in Section 3.1(y) of the Chartwell Disclosure Schedule,
each of the Insurers is entitled under applicable insurance laws, rules and
regulations to take credit in its statutory financial statements in accordance
with Chapter 22 of the NAIC Accounting Practices and Procedures Manual for
Property and Casualty Insurance Companies as in effect on the date hereof with
respect to the Reinsurance Contracts listed in Section 3.1(y) of the Chartwell
Disclosure Schedule and all such amounts are properly reflected in the statutory
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financial statements of each Insurer. Each of Chartwell and the Insurers has no
knowledge of any disputes as to reinsurance or retrocessional coverage under, or
any terms or provisions of, any such Reinsurance Contract. To the knowledge of
Chartwell and each Insurer, the financial condition of any other party to any
such Reinsurance Contract is not impaired to the extent that a default
thereunder could reasonably be expected to occur.
(z) Reinsurance Agreement. Chartwell has obtained on or prior to the date of
this Agreement an underwriting commitment in the form set forth in Section
3.1(z) of the Chartwell Disclosure Schedule with respect to the Reinsurance
Agreement.
SECTION 3.2. Representations and Warranties of Trenwick. Except as disclosed
in the Disclosure Schedule delivered by Trenwick to Chartwell at or prior to the
execution of this Agreement (the "Trenwick Disclosure Schedule") and making
reference to the particular subsection of this Agreement to which exception is
being taken, Trenwick represents and warrants to Chartwell as follows:
(a) Organization, Standing and Corporate Power. Each of Trenwick and its
subsidiaries (as defined in Section 8.2(d)) is a corporation or other legal
entity duly organized, validly existing and in good standing (with respect to
jurisdictions that recognize such concept) under the laws of the jurisdiction in
which it is organized and has the requisite corporate or other power, as the
case may be, and authority to carry on its business as now being conducted,
except where the failure to be so organized, existing or in good standing or to
have such power individually or in the aggregate would not have a Material
Adverse Effect (as defined in Section 8.2(h)) on Trenwick. Each of Trenwick and
its subsidiaries is duly qualified or licensed to do business and is in good
standing (with respect to jurisdictions that recognize such concept) in each
jurisdiction in which the nature of its business or the ownership, leasing or
operation of its properties makes such qualification, licensing or good standing
necessary, except for those jurisdictions where the failure to be so qualified
or licensed or to be in good standing or to have such power individually or in
the aggregate would not have a Material Adverse Effect on Trenwick. Trenwick has
delivered to Chartwell complete and correct copies of its Certificate of
Incorporation and By-laws and the Certificates of Incorporation and By-laws, or
other organizational documents, of its subsidiaries, in each case as amended to
the date of this Agreement.
(b) Subsidiaries. Section 3.2(b) of the Trenwick Disclosure Schedule includes
all the subsidiaries of Trenwick which as of the date of this Agreement are
Significant Subsidiaries. All the outstanding shares of capital stock of, or
other equity interests in, each such Significant Subsidiary have been validly
issued and are fully paid and nonassessable and are owned directly or indirectly
by Trenwick, free and clear of Liens.
(c) Capital Structure. The authorized capital stock of Trenwick consists of
30,000,000 shares of Trenwick Common Stock and 2,000,000 shares of preferred
stock, par value $.10 per share. At the close of business on June 18, 1999, (i)
10,630,510 shares of Trenwick Common Stock were issued and outstanding, (i)
1,071,170 shares of Trenwick Common Stock were reserved for issuance pursuant to
outstanding stock options ("Trenwick Stock Options") issued under Trenwick's
1989 Stock Plan, 1993 Stock Option Plan and 1993
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Stock Option Plan for Non-Employee Directors all currently in effect
(collectively, the "Trenwick Stock Option Plans"), (ii) zero shares of Trenwick
Common Stock were held in Trenwick's treasury and (iii) 200,000 shares of Series
B Junior Participating Preferred Stock, were reserved for issuance in connection
with the rights issued pursuant to the Rights Agreement dated as of September
24, 1997 (the "Rights Agreement"), between Trenwick and First Chicago Trust
Company of New York. Except as set forth above, at the close of business on June
18, 1999, no shares of capital stock or other equity securities of Trenwick were
issued, reserved for issuance or outstanding. All outstanding shares of capital
stock of Trenwick are, and all shares which may be issued pursuant to this
Agreement or the Trenwick Stock Option Plans will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except as set forth in Section 3.2(c) of the Trenwick
Disclosure Schedule, since January 1, 1999, no shares of the capital stock of
Trenwick have been issued other than pursuant to Trenwick Stock Options already
in existence on such date, and, since such date, no Trenwick Stock Options have
been granted. No bonds, debentures, notes or other indebtedness of Trenwick or
any subsidiary of Trenwick having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
the stockholders of Trenwick or any subsidiary of Trenwick may vote are issued
or outstanding. Section 3.2(b) of the Trenwick Disclosure Schedule lists the
Significant Subsidiaries of Trenwick and, except for the capital stock of such
subsidiaries, Trenwick does not own, directly or indirectly, any capital stock
or other ownership interest in any corporation, partnership, joint venture or
other entity other than any publicly-traded corporation in which Trenwick owns
100 or fewer shares of common stock and other than any registered investment
company. All the outstanding shares of capital stock of each subsidiary of
Trenwick have been validly issued and are fully paid and nonassessable and are
owned by Trenwick, by one or more wholly owned subsidiaries of Trenwick or by
Trenwick and one or more such wholly owned subsidiaries, free and clear of all
Liens. Except as set forth above, there are not any securities, options,
warrants, rights, commitments or agreements of any kind to which Trenwick or any
subsidiary is a party or by which any of them is bound obligating Trenwick or
any subsidiary to issue, sell or deliver, or repurchase, redeem or otherwise
acquire, shares of capital stock or other equity or voting securities of any of
them or securities convertible into or exchangeable for capital stock or voting
securities of Trenwick, or obligating any of them to issue, sell, deliver,
grant, extend or enter into any such security, option, warrant, right,
commitment or agreement. There are no stockholder agreements, voting trusts or
other agreements or understandings to which Trenwick or any of its subsidiaries
is a party, or to which any of them is bound, relating to the voting or
disposition of any shares of capital stock of Trenwick or any subsidiary
thereof.
(d) Authority; Noncontravention. Trenwick has all requisite corporate power and
authority to enter into this Agreement and, subject to obtaining the Trenwick
Stockholder Approval (as defined in Section 3.2(o)), to consummate the
transactions contemplated by this Agreement. Trenwick has all requisite
corporate power and authority to enter into the Stock Option Agreement and to
consummate the transactions contemplated thereby. The execution and delivery of
this Agreement and the Stock Option Agreement by Trenwick and the consummation
by Trenwick of the transactions contemplated by this Agreement and the Stock
Option Agreement have been duly authorized by all necessary corporate action on
the part of Trenwick, subject to the Trenwick Stockholder Approval. This
Agreement and the Stock Option Agreement have been duly executed and delivered
by Trenwick and, assuming the due
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authorization, execution and delivery of this Agreement and the Stock Option
Agreement by Chartwell constitute legal, valid and binding obligations of
Trenwick, enforceable against Trenwick in accordance with their respective
terms. The execution and delivery of this Agreement and the Stock Option
Agreement do not, and, subject to the Trenwick Stockholder Approval with respect
to this Agreement, the consummation of the transactions contemplated by this
Agreement and the Stock Option Agreement and compliance with the provisions of
this Agreement and the Stock Option Agreement will not, conflict with, or result
in any violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under, or result in the
creation of any Lien upon any of the properties or assets of Trenwick or any of
its subsidiaries under, (i) the Certificate of Incorporation or By-laws of
Trenwick or the comparable organizational documents of any of its subsidiaries,
(ii) subject to the matters referred to in the next sentence, any indenture or
other material agreement, permit, franchise, license or instrument to which
Trenwick or any of its subsidiaries is a party or by which Trenwick or any of
its subsidiaries or any of their assets is bound or affected, or (iii) subject
to the matters referred to in the next sentence, any statute, law, ordinance,
rule, regulation, order, judgment, injunction, decree, determination or award
applicable to Trenwick or any of its subsidiaries or any of their respective
properties or assets, other than, in the case of clause (ii) above, any such
conflicts, violations, defaults, rights, losses or Liens that individually or in
the aggregate would not (x) have a Material Adverse Effect on Trenwick or (y)
reasonably be expected to impair materially the ability of Trenwick to perform
its obligations under this Agreement and the Stock Option Agreement. No consent,
approval, order, or authorization of, action by or in respect of, or
registration, declaration or filing with any Governmental Entity, or of Lloyd's,
is required by or with respect to Trenwick or any of its subsidiaries in
connection with the execution and delivery of this Agreement and the Stock
Option Agreement by Trenwick or the consummation by Trenwick of the transactions
contemplated hereby, except for (A) in connection with or in compliance with the
provisions of (1) the HSR Act, (2) the Securities Act, (3) the Exchange Act, (4)
the DGCL, (5) NASDAQ, (6) any non-United States competition, antitrust and
investment laws, and the securities or "blue sky" laws of the various states,
(7) the approvals, filings and notices required under the insurance laws of the
jurisdictions in which Trenwick transacts the business of reinsurance; (8) the
filing of the certificate of merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in which
Trenwick is qualified to do business, (9) any required consents and waivers of
Lloyd's and (B) such other consents, approvals, orders, authorizations, actions,
registrations, declarations, filings or notices (as may be required) the failure
of which to be made or obtained individually or in the aggregate would not have
a Material Adverse Effect on Trenwick.
(e) SEC Documents; Financial Statements. (i) Trenwick has timely filed all
required forms, reports, schedules, statements and other documents (including
exhibits and all other information incorporated therein) with the SEC since
January 1, 1996. Trenwick has delivered or made available to Chartwell all
registration statements, proxy statements, annual reports, quarterly reports and
reports on Form 8-K and other forms, reports and documents, if any, filed by
Trenwick with the SEC since January 1, 1996 (as such documents have been amended
since the time of their filing, collectively, the "Trenwick SEC Documents"). As
of their respective dates or, if amended, as of the date of the last such
amendment, the Trenwick SEC Documents (i) were timely filed and complied as to
form in all material respects with the
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applicable requirements of the Securities Act or the Exchange Act, as the case
may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Trenwick SEC Documents, and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The consolidated
financial statements of Trenwick included in the Trenwick SEC Documents complied
as to form, as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles (except, in the case of unaudited
consolidated quarterly statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present in all material respects the consolidated
financial position of Trenwick and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited quarterly statements, to
normal year-end adjustments).
(ii) Trenwick has previously furnished to Chartwell true and complete copies of
the annual statements for each of the years ended December 31, 1996, December
31, 1997, and December 31, 1998, together with all exhibits and schedules
thereto (collectively, the "Annual Statements"), with respect to Trenwick
America Reinsurance Company ("TARCO") as filed with the appropriate Insurance
Regulator. The Annual Statements were prepared in conformity with SAP and
present fairly, to the extent required by and in conformity with SAP in all
material respects the statutory financial condition of TARCO at their respective
dates and the results of operations, changes in capital and surplus and cash
flow of TARCO for each of the periods then ended. No deficiencies or violations
material to the financial condition of TARCO, individually, whether or not
material in the aggregate, have been asserted in writing by any Insurance
Regulator which have not been cured or otherwise resolved to the satisfaction of
such Insurance Regulator (unless not currently pending). Trenwick has made
available to Chartwell true and complete copies of all financial examination
reports of state insurance departments since January 1, 1996 relating to TARCO.
The quarterly statements of TARCO for the quarter ending March 31, 1999 as filed
and the quarterly statements of TARCO thereafter filed prior to the Closing,
when filed with the insurance regulatory authorities of the applicable states,
presented and will present fairly, to the extent required by and in conformity
with SAP in all material respects the statutory financial condition of TARCO at
its respective dates indicated and the results of operations, changes in capital
and surplus and cash flow of TARCO for each of the periods therein specified
(subject to normal year-end adjustments).
(iii) Trenwick has previously furnished to Chartwell true and complete copies of
the financial statements of Trenwick International Limited ("Trenwick
International") for each of the years ended December 31,1996, December 31, 1997,
and December 31, 1998, together with all exhibits and schedules thereto
(collectively, the "Trenwick International Financial Statements"), as filed with
the appropriate Insurance Regulator. The Trenwick International Financial
Statements have been prepared in accordance with the requirements of all
relevant statutes and with generally accepted accounting principles (including
to the extent applicable, the Guidance on Accounting for Insurance Business as
published by the Association of British Insurers) ("U.K. GAAP") and are complete
and accurate in all material respects and
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show a true and fair view of the state of affairs of Trenwick International and
its subsidiaries and the profit of Trenwick International and its subsidiaries
for the financial period ending on their respective dates. No deficiencies or
violations material to the financial condition of Trenwick International,
individually, whether or not material in the aggregate, have been asserted in
writing by any Insurance Regulator which have not been cured or otherwise
resolved to the satisfaction of such Insurance Regulator (unless not currently
pending). Trenwick has made available to Chartwell true and complete copies of
all financial examination reports of applicable insurance regulatory authorities
since January 1, 1996 relating to Trenwick International and its subsidiaries.
The quarterly statements of Trenwick International for the quarter ending March
31, 1999 and thereafter prior to the Closing, when filed with the appropriate
Insurance Regulators, will have been prepared in accordance with the
requirements of all relevant statutes and with U.K. GAAP and are complete and
accurate in all material respects and show a true and fair view of the state of
affairs of Trenwick International and its subsidiaries and the profit of
Trenwick International and its subsidiaries for the financial period ending on
their respective dates (subject to normal year-end adjustments).
(f) Information Supplied. None of the information supplied or to be supplied by
Trenwick for inclusion or incorporation by reference in (i) the Form S-4 will,
at the time the Form S-4 is filed with the SEC, at any time it is amended or
supplemented or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of circumstances under which they are made, not misleading or (ii) the
Joint Proxy Statement will, at the date it is first mailed to Trenwick's
stockholders or at the time of the Trenwick Stockholders Meeting (as defined in
Section 5.2), contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The Form S-4 will comply as to form in all material respects
with the requirements of the Securities Act and the rules and regulations
promulgated thereunder. The Joint Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange Act and the rules and
regulations promulgated thereunder. Notwithstanding the foregoing, no
representation or warranty is made by Trenwick in this Section 3.2(f) with
respect to information supplied by Chartwell for inclusion or incorporation by
reference in the Joint Proxy Statement.
(g) Absence of Certain Changes or Events. Except in connection with this
Agreement, the Stock Option Agreement and the transactions contemplated hereby,
as disclosed in the Trenwick SEC Documents filed and publicly available prior to
the date of this Agreement (the "Filed Trenwick SEC Documents") since the date
of the most recent audited financial statements included in the Filed Trenwick
SEC Documents, Trenwick and its subsidiaries have conducted their business in
the ordinary course consistent with past practice, and there has not occurred
(i) any event or change having individually or in the aggregate a Material
Adverse Effect on Trenwick, (ii) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or property) with
respect to any of Trenwick's outstanding capital stock, other than regular
quarterly cash dividends of $.26 per share on the Trenwick Common Stock and
dividends paid by wholly owned subsidiaries, (iii) (A) any granting by Trenwick
or any of its subsidiaries to any current or former director or officer of
Trenwick or its subsidiaries of any increase in compensation, bonus or other
benefits, except for normal
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increases in the ordinary course of business, (B) any granting by Trenwick or
any of its subsidiaries to any such current or former director or officer of any
increase in severance or termination pay or (C) any entry by Trenwick or any of
its subsidiaries into, or any amendments of, any employment, deferred
compensation, consulting, severance, termination or indemnification agreement
with any such current or former director or officer, (iv) any tax election that
individually or in the aggregate would have a Material Adverse Effect on
Trenwick or any of its tax attributes or any settlement or compromise of any
material income tax liability, or (v) any change in accounting methods,
principles or practices by Trenwick or any of its subsidiaries materially
affecting their assets, liabilities or business, except insofar as may have been
required or permitted by a change in applicable accounting principles (including
SAP).
(h) Benefit Plans. (A) (i) Each "employee benefit plan" (as defined in Section
3(3) of ERISA), and each other plan, arrangement or policy, whether written or
oral, relating to stock options, stock purchases, stock appreciation rights,
profit sharing, group insurance, vacation pay, leave of absence, dependent care,
cafeteria benefits, workers compensation, consulting, pension, retirement,
compensation, deferred compensation, severance, fringe benefits or other
employee benefits, in each case maintained or contributed to, or required to be
maintained or contributed to, by Trenwick or any of its subsidiaries for the
benefit of any present or former U.S. officer, employee or director of Trenwick
or any of its subsidiaries (all the foregoing collectively referred to
hereinafter as "Trenwick Benefit Plans") has been administered substantially in
accordance with its terms and any related trust agreement or insurance contract
has been administered substantially in accordance with its terms. Trenwick, its
subsidiaries and all the Trenwick Benefit Plans, and any related trust
agreements or insurance contracts, are in substantial compliance with the
applicable provisions of ERISA, the Code, all other applicable laws and all
applicable collective bargaining agreements.
(ii) None of Trenwick or any other person or entity that together with Trenwick
is treated as a single employer under Section 414 of the Code (each a "Trenwick
Commonly Controlled Entity") has incurred any material liability under Title IV
of ERISA (other than for the payment of benefits or the timely payment of
Pension Benefit Guaranty Corporation insurance premiums, in either case in the
ordinary course) or under Section 412(f) or 412(n) of the Code, and no condition
exists which could reasonably be expected to present a risk of Trenwick or any
Commonly Controlled Entity incurring such a material liability.
(iii) Neither Trenwick nor any Trenwick Commonly Controlled Entity is obligated
to contribute to any "multiemployer plan" (as defined in Section 3(37) or
Section 4001(a)(3) of ERISA) or has any material liability, including current or
potential withdrawal liability (within the meaning of Section 4201 of ERISA)
with respect to any multiemployer plan.
(iv) Except as contemplated by Section 2.4 or as disclosed in the Filed Trenwick
SEC Documents or in Section 3.2(h) of the Trenwick Disclosure Schedule, since
the date of the most recent audited financial statements included in the Filed
Trenwick SEC Documents, there has not been any adoption or amendment by Trenwick
or any of its subsidiaries of any collective bargaining agreement or any
Trenwick Benefit Plan. Except as disclosed in the Filed Trenwick SEC Documents
or in Section 3.2(h) of the Trenwick Disclosure Schedule, there exist no
employment, consulting, change in control, severance, termination or
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indemnification agreements, arrangements or understandings between Trenwick or
any subsidiary and any current or former employee, officer or director of
Trenwick or any subsidiary or any Trenwick Benefit Plan.
(v) All material contributions and other payments required to be made by
Trenwick and its subsidiaries to any Trenwick Benefit Plan prior to the date
hereof have been made and all accruals required to be made under any Trenwick
Benefit Plan have been made. There is no claim, dispute, grievance, charge,
complaint, restraining or injunctive order, litigation or proceeding pending,
or, to the knowledge of Trenwick, threatened or anticipated (other than routine
claims for benefits) against or relating to any Trenwick Benefit Plan or against
the assets of any Trenwick Benefit Plan which could reasonably be expected to
result in the imposition of any material liability of Trenwick. Neither Trenwick
nor any of its subsidiaries has communicated generally to employees or
specifically to any employee regarding any future increase of benefit levels (or
future creations of new benefits) with respect to any Trenwick Benefit Plans.
(vi) Each Trenwick Benefit Plan can be terminated or otherwise discontinued
without any liability to Trenwick or any subsidiary that would reasonably be
expected to have a Material Adverse Effect. With respect to each Trenwick
Benefit Plan subject to Title IV of ERISA and with respect to each plan of a
Trenwick Commonly Controlled Entity subject to Title IV of ERISA (each a
"Trenwick Defined Benefit Plan") Trenwick Defined Benefit Plan (i) no
termination of any Trenwick Defined Benefit Plan has occurred pursuant to which
all liabilities have not been satisfied in full, and no event has occurred and
no condition exists that could reasonably be expected to result in Trenwick or
any Trenwick Commonly Controlled Entity incurring liability under Title IV of
ERISA or could constitute grounds for terminating any Trenwick Defined Benefit
Plan; (ii) each Trenwick Defined Benefit Plan which is subject to Part 3 of
Subtitle B of Title I of ERISA or Section 412 of the Code, has been maintained
in compliance with the minimum funding standards of ERISA and the Code and no
such Trenwick Defined Benefit Plan has incurred any "accumulated funding
deficiency," as defined in Section 412 of the Code and Section 302 of ERISA,
whether or not waived; (iii) neither Trenwick nor any Trenwick Commonly
Controlled Entity has sought or received a waiver of its funding requirements
with respect to any Trenwick Defined Benefit Plan and all material contributions
payable with respect to each Defined Benefit Plan have been timely made; (iv) no
reportable event, within the meaning of Section 4043 of ERISA, and no event
described in Section 4062 or 4063 of ERISA, has occurred with respect to any
Trenwick Defined Benefit Plan; (v) the aggregate accumulated benefit obligations
of each Trenwick Defined Benefit Plan subject to Title IV of ERISA (as of the
date of the most recent actuarial valuation prepared for such Trenwick Defined
Benefit Plan) do not exceed the fair market value of the assets of such Trenwick
Defined Benefit Plan (as of the date of such valuation); and (vi) no amendment
has been made to any Trenwick Defined Benefit Plan that has required or would
require the provision of security under ERISA Section 307 or Code Section
401(a)(29).
(vii) The execution, delivery and performance of this Agreement and the
transactions contemplated hereby will not in and of themselves result in the
imposition of any federal excise tax with respect to any Trenwick Benefit Plan.
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(viii) Neither Trenwick nor any subsidiary maintains or contributes (or has
maintained or contributed to) any Trenwick Benefit Plan which provides, or has a
liability to provide, life insurance, medical, severance, or other employee
welfare benefits to any employee upon his retirement or termination of
employment, except as may be required by Section 4980B of the Code.
(ix) Neither Trenwick nor any of its subsidiaries maintains or contributes to a
trust, organization or association described in any of the Sections 501(c)(9),
501(c)(17) or 501(c)(2) of the Code.
(x) Favorable determination letters have been received from the Internal Revenue
Service with respect to each Trenwick Benefit Plan which is intended to comply
with the provisions of Section 401(a) of the Code, and each such Trenwick
Benefit Plan complies in form and in operation in all material respects with the
requirements of a "qualified plan" under Section 401(a) of the Code.
(xi) Neither Trenwick nor any of its subsidiaries, nor any of their respective
directors, officers, employees or, to the knowledge of Trenwick any other
"fiduciary," as such term is defined in Section 3(21) of ERISA, has any
liability for failure to comply with ERISA or the Code for any action or failure
to act in connection with the administration or investment of the Trenwick
Benefit Plans.
(xii) There has been no act or acts which would result in a disallowance of a
deduction or the imposition of a tax pursuant to Section 4980B, or with regard
to plan years beginning before December 31, 1988, Section 162(i) of the Code as
in effect immediately prior to the enactment of the Technical and Miscellaneous
Revenue Act of 1988, or any regulations promulgated thereunder, whether final,
temporary or proposed. No event has occurred with respect to which Trenwick or
any of its subsidiaries could be liable for a tax imposed by Chapter 43 of
Subtitle A of the Code, or for a civil penalty or other liability under Section
502(c) or Section 501(l) of ERISA. Each Trenwick Benefit Plan that is a "group
health plan" as defined in Section 607 of ERISA complies in all material
respects and has been operated in substantial compliance in all respects with
Part 7 of Title I, Subtitle B of ERISA and Subtitle K of the Code.
(xiii) With respect to each of the Trenwick Benefit Plans, Trenwick has
delivered to Chartwell true and complete copies of: (a) the plan documents,
including any related trust agreements, insurance contracts or other funding
arrangements, or a written summary of the terms and conditions of the plan if
there is no written plan document; (b) the most recent determination letter
received from the Internal Revenue Service; (c) the most recent IRS Form 5500;
(d) the most recent actuarial valuation; (e) the most recent financial
statement; (f) all material correspondence with the Internal Revenue Service,
the Department of Labor and the Pension Benefit Guaranty Corporation with
respect to the past three plan years other than IRS Form 5500 filings and PBGC
premium payments; and (g) the most recent summary plan description.
(B) Except as would not have a Material Adverse Effect on Trenwick and so far as
the senior management of Trenwick International as hereinafter defined (and for
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this purpose the senior management means the following individuals: Pierre D.
Croizat and Russell J. English) are aware:
(i) There is no existing or threatened or pending industrial or trade dispute
involving Trenwick International and any of the employees of Trenwick
International and there are no facts known or which would on reasonable inquiry
be known to Trenwick International which might indicate that there may be any
such dispute (excluding the Merger and the transactions contemplated by this
Agreement). There are no agreements or arrangements (whether oral or in writing
or existing by reason of custom and practice and whether or not legally binding)
between Trenwick International and any trade union or other employees'
representatives or organization concerning or affecting the employees of
Trenwick International and there are no trade unions or other employees'
representatives whom Trenwick International recognizes to any extent for
collective bargaining purposes nor, so far as Trenwick International is aware,
has Trenwick International done any act which might be construed as recognition.
(ii) Trenwick International has given no notice of any redundancies to the U.K.
Secretary of State nor started consultations with any independent trade union or
employees' representatives within the preceding period of one year in relation
to any of employees of Trenwick International. No circumstances have arisen
under which Trenwick International is likely to be required to pay damages for
wrongful dismissal or breach of contract, to make any contractual or statutory
redundancy payment or make or pay any compensation in respect of unfair
dismissal, to make any other payment under any employment protection legislation
or to reinstate or re-engage any former employee. No circumstances have arisen
under which Trenwick International is likely to be required to pay damages or
compensation, or suffer any penalty or be required to take corrective action or
be subject to any form of discipline under the Employment Rights Act 1996, the
Trade Union and Labour Relations (Consolidation) Act 1992, the Transfer of
Undertakings (Protection of Employment) Regulations 1981, the Sex Discrimination
Act 1975, the Equal Pay Act 1970, the Treaty of Rome or any Directive or
recommendation made pursuant to it, the Race Relations Act 1976 or the
Disability Discrimination Act 1995. So far as Trenwick International is aware,
there are no current, pending or threatened claims of any type against Trenwick
International by any existing or former employees or directors of Trenwick
International or by any existing or former consultants to Trenwick
International.
(iii) There are no existing service or other agreements or contracts between
Trenwick International and any of its directors or executives or employees which
cannot be lawfully terminated by six calendar months' notice or less without
giving rise to any claim for damages or compensation other than a statutory
redundancy payment or a claim for unfair dismissal depending on the
circumstances of the termination. Trenwick International has complied with all
its material obligations under all legislation, regulations and other
requirements having the force of law (including, without limitation, orders and
awards) in connection with its employees, directors and consultants.
(iv) Trenwick International is not involved in negotiations (whether with
employees or any trade union or other employees' representatives) to vary the
terms and conditions of employment or engagement of any of its employees,
directors or consultants and
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has not made any representations, promises, offers or proposals to any of its
employees, directors or consultants or to any trade union or other employees'
representatives concerning or affecting the terms and conditions of employment
or engagement of any of its employees, directors or consultants.
(v) Trenwick International has discharged its obligations in full in relation to
salary, wages, fees, commission, bonuses, overtime pay, holiday pay, sick pay
and all other benefits and emoluments relating to its employees, consultants and
directors in respect of all prior periods.
(vi) There are no pension, share option, share incentive, life assurance,
disability or similar schemes, arrangements or obligations for any employees or
directors of Trenwick International, and Trenwick International has no
obligations (whether legally binding or established by custom) to pay any
pension or make any other payment after retirement or death or otherwise to
provide "relevant benefits" within the meaning of section 612 of the U.K. Income
and Corporation Taxes Act 1988 or to make any payment for the purpose of
providing such "relevant benefits" to or in respect of any person who is now or
has been an officer or employee of Trenwick International and is not a party to
any scheme or arrangement having as its purpose or one of its purposes the
making of such payments or the provision of such benefits.
(vii) All Retirement Benefits Schemes comply with and have at all times complied
with the provisions of the relevant legislation and the requirements of the
Pension Schemes Office and the Contributions Agency affecting schemes approved
under Chapter I of Part XIV of the U.K. Income and Corporation Taxes Act 1988.
Trenwick International and the trustees of such schemes have duly complied with
their respective obligations under the trust deeds and the rules thereof and
under the aforementioned legislation and requirements. All amounts due to the
trustees thereof or to any insurance company in connection therewith have been
paid.
(viii) Neither Trenwick International nor the trustees of any pension scheme is
engaged in any litigation or arbitration proceedings in respect of any
Retirement Benefits Scheme or any benefit provided thereunder in relation to the
employees or former employees of Trenwick International and there are no current
submissions or referrals to the Pensions Ombudsman or to the Occupational
Pensions Advisory Service in respect of Trenwick International or any pension
scheme.
(ix) No Retirement Benefits Scheme in which employees or former employees of
Trenwick International participate or have participated has been or is in the
process of being (or is proposed to be) wound up (in whole or in part) or closed
to new entrants (in whole or in part).
(i) Taxes. (i) Trenwick is the common parent of an affiliated group of
corporations (within the meaning of Section 1504(a) of the Code) eligible to
file consolidated federal income tax returns, of which each of the subsidiaries
that is an includible corporation under Section 1504(b) of the Code is a member;
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(ii) Trenwick and each of its subsidiaries have filed (or joined in the filing
of) when due all material tax returns required by applicable law to be filed
with respect to Trenwick or any of the subsidiaries and all taxes shown to be
due on such tax returns have been paid;
(iii) all such tax returns were true, correct and complete as of the time of
such filing;
(iv) all material taxes relating to periods ending on or before the Effective
Time owed by Trenwick or any of its subsidiaries (whether or not shown on any
tax return) or to which Trenwick or any of its subsidiaries may be liable under
Treasury Regulations sec.1.1502-6 (or analogous state or foreign provisions) by
virtue of having been a member of any "affiliated group" (or other group filing
on a combined or unitary basis) at any time on or prior to the Effective Time,
if required to have been paid, have been paid (except for taxes which are being
contested in good faith);
(v) any liability of Trenwick or any of its subsidiaries for material taxes not
yet due and payable, or which are being contested in good faith, has been
provided for on the financial statements of Trenwick in accordance with
generally accepted accounting principles;
(vi) there is no action, suit, proceeding, investigation, audit or claim now
pending against, or with respect to, Trenwick or any of its subsidiaries in
respect of any material tax or assessment, nor is any claim for additional tax
or assessment asserted by any tax authority;
(vii) since January 1, 1991, no claim has been made by any tax authority in a
jurisdiction where Trenwick or any of its subsidiaries does not currently file a
tax return that it is or may be subject to material tax by such jurisdiction,
nor to Trenwick's knowledge is any such assertion threatened;
(viii) there is no outstanding request by Trenwick or any of its subsidiaries
for any extension of time within which to pay any taxes or file any tax returns;
(ix) there has been no waiver or extension of any applicable statute of
limitations for the assessment or collection of any taxes of Trenwick or any of
its subsidiaries;
(x) no property of Trenwick or any of its subsidiaries is "tax-exempt use
property" within the meaning of Section 168(h) of the Code;
(xi) neither Trenwick nor any of its subsidiaries is a party to any lease made
pursuant to former Section 168(f)(8) of the Internal Revenue Code of 1954;
(xii) no excess loss account (within the meaning of Treasury Regulations
sec.1.1502-19) exists with respect to any of Trenwick's subsidiaries;
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(xiii) neither Trenwick nor any of its subsidiaries has any deferred gain or
loss arising from any intercompany transactions, within the meaning of Treasury
Regulations sec. 1.1502-13;
(xiv) neither Trenwick nor any of its subsidiaries has filed any agreement or
consent under Section 341(f) of the Code;
(xv) except as set forth in Section 3.2(i)(xv) of the Trenwick Disclosure
Schedule, neither Trenwick nor any of its subsidiaries is a party to any
agreement, whether written or unwritten, providing for the payment of taxes,
payment for tax losses, entitlements to refunds or similar tax matters;
(xvi) no ruling with respect to taxes (other than a request for determination of
the status of a qualified pension plan) has been requested by or on behalf of
Trenwick or any of its subsidiaries;
(xvii) neither Trenwick nor any of its subsidiaries has been a United States
real property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code;
(xviii) Trenwick and each of its subsidiaries have withheld and paid all
material taxes required to be withheld in connection with any amounts paid or
owing to any employee, creditor, independent contractor or other third party;
and
(xix) neither Trenwick nor any of its subsidiaries has taken any action or knows
of any fact, agreement, plan or other circumstance that is reasonably likely to
prevent the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
(j) Compliance with Applicable Laws. Trenwick and its subsidiaries have in full
force and effect all Permits necessary for them to own, lease or operate their
respective properties and assets and to carry on their respective business as
now conducted, and there has occurred no default under any such Permit, except
for failures of Permits to be in full force and effect and for defaults under
Permits which individually or in the aggregate would not have a Material Adverse
Effect on Trenwick. Except as disclosed in the Filed Trenwick SEC Documents,
Trenwick and its subsidiaries are in compliance with all applicable statutes,
laws, ordinances, rules, regulations and orders of any Governmental Entity,
except for such noncompliance which individually or in the aggregate would not
have a Material Adverse Effect on Trenwick. Trenwick and its subsidiaries are in
compliance with all applicable recommendations and requirements of the
Underwriting Agency Department of Lloyd's, except for such noncompliance which
individually or in the aggregate would not have a Material Adverse Effect on
Trenwick.
(k) Litigation. There is no suit, action, proceeding or arbitration (excluding
those arising in the ordinary course of business relating to policies of
insurance or reinsurance written by Trenwick and its subsidiaries) pending or,
to the knowledge of Trenwick, threatened against or affecting Trenwick or any of
its subsidiaries or any of their respective properties or assets that
individually or in the aggregate could reasonably be expected to (i) have a
Material
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Adverse Effect on Trenwick, (ii) impair the ability of Trenwick to perform its
obligations under this Agreement or (iii) prevent the consummation of any of the
transactions contemplated by this Agreement, nor is there any judgment, writ,
decree, injunction or order of any Governmental Entity or arbitrator outstanding
against Trenwick or any of its subsidiaries having, or which could be reasonably
expected to have any such effect.
(l) No Undisclosed Liabilities. Except (i) as disclosed in the Filed Trenwick
SEC Documents, (ii) obligations for losses, loss adjustment expenses, unearned
premiums and reinsurance premiums under reinsurance and insurance contracts
entered into by Trenwick and its subsidiaries and (iii) as a result of any
transaction which has been approved in writing by Chartwell, none of Trenwick or
its subsidiaries has any liabilities or obligations of any nature, whether or
not accrued, contingent or otherwise, and whether due or to become due or
asserted or unasserted which, individually or in the aggregate, would have a
Material Adverse Effect on Trenwick.
(m) Reserves. (i) All reserves for claims, losses (including, without
limitation, incurred but not reported losses) and loss adjustment expenses
(whether allocated or unallocated) as reflected in the Annual Statement of TARCO
for each of the years ended December 31, 1996, December 31, 1997, and December
31, 1998, together with all exhibits and schedules thereto (a) were determined
in accordance with SAP and commonly accepted actuarial standards and principles
consistently applied and were fairly stated in accordance with sound actuarial
principles specified by the Actuarial Standards Board, (b) meet the requirements
of all applicable insurance laws, rules, and regulations of each applicable
jurisdiction in all material respects, and (c) were based on actuarial
assumptions which were in accordance with those called for in relevant policy
and contract provisions, and such reserves made reasonable provision in the
aggregate to cover the total amount of liabilities under all outstanding
policies and contracts of insurance, reinsurance and retrocession as of the
dates of such statutory statements (it being understood that no representation
or warranty is made in this Agreement to the effect that such reserves were in
fact adequate to cover the actual amount of such liabilities that are eventually
paid after the date thereof). Each Insurer owns assets that qualify as admitted
assets under applicable insurance laws and regulations in an amount at least
equal to all such required reserves plus its minimum statutory capital and
surplus as required under applicable insurance laws, rules and regulations.
Except as set forth in Section 3.2(m) of the Trenwick Disclosure Schedule,
TARCO's reserves have not been discounted on either a tabular or non-tabular
basis.
(ii) All net reserves for claims, losses (including, without limitation,
incurred but not reported losses) and loss adjustment expenses (whether
allocated or unallocated) of Trenwick International as reflected in the audited
financial statements of Trenwick for each of the years ended December 31, 1997
and December 31, 1998 (a) were determined in accordance with GAAP and commonly
accepted actuarial standards and principles consistently applied and were fairly
stated in accordance with sound actuarial principles specified by the Actuarial
Standards Board and (b) were based on actuarial assumptions which were in
accordance with those called for in relevant policy and contract provisions, and
such reserves made reasonable provision in the aggregate to cover the total
amount of liabilities under all outstanding policies and contracts of insurance,
reinsurance and retrocession as of the dates of such audited financial
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statements (it being understood that no representation or warranty is made in
this Agreement to the effect that such reserves were in fact adequate to cover
the actual amount of such liabilities that are eventually paid after the date
thereof).
(n) Opinion of Financial Advisor. Trenwick has received the opinion of
Donaldson, Lufkin & Jenrette Securities Corporation dated as of the date of this
Agreement to the effect that the Conversion Number is fair to the stockholders
of Trenwick from a financial point of view.
(o) Voting Requirements. The affirmative vote of holders of a majority of the
shares of Trenwick Common Stock (with each share of Trenwick Common Stock having
one vote per share) to approve and adopt this Agreement and the Merger and to
authorize the issuance of the Stock Consideration (the "MetroCo Stockholder
Approval") is the only vote of the holders of any class or series of capital
stock of MetroCo necessary to approve and adopt this Agreement and the Merger
and the transactions contemplated hereby.
(p) Brokers. No broker, investment banker, financial advisor or other person,
other than Donaldson, Lufkin & Jenrette Securities Corporation, the fees and
expenses of which will be paid by Trenwick, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Trenwick. Trenwick has furnished to Chartwell true and
complete copies of all agreements under which any such fees or expenses are
payable and all indemnification and other agreements related to the engagement
of the persons to whom such fees are payable.
(q) No Default. Except as disclosed in the Trenwick SEC Documents, the business
of Trenwick and each of its subsidiaries is not being conducted in default or
violation of any term, condition or provision of (i) its respective certificate
of incorporation or by-laws or similar organizational documents, or (ii) any
company agreement, excluding from the foregoing clause (ii), defaults or
violations that would not have a Material Adverse Effect on Trenwick or would
not materially impair the ability of Trenwick to consummate the Merger or the
other transactions contemplated hereby.
(r) Related Party Transactions. All transactions, agreements, arrangements or
understandings between Trenwick or any of Trenwick's subsidiaries, on the one
hand, and Trenwick's affiliates (other than wholly-owned subsidiaries of
Trenwick) or other Persons, on the other hand, that are required to be disclosed
in the Trenwick SEC Documents in accordance with Item 404 of Schedule S-K under
the Securities Act have been so disclosed. Since March 31, 1999, there have been
no transactions, agreements, arrangements or understandings between Trenwick or
any of its subsidiaries, on the one hand, and Trenwick's affiliates (other than
wholly-owned subsidiaries of Trenwick) or other Persons, on the other hand, that
would be required to be disclosed in future public filings under the Exchange
Act pursuant to such Item which have not already been disclosed in the Trenwick
SEC Documents filed prior to the date hereof.
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(s) Title to Property. (i) Trenwick and its subsidiaries have good and valid
title to, have valid leasehold interests in or valid contractual rights to use,
all of the assets, tangible and intangible, used by or necessary for the conduct
of, their business, except where the failure to have such good and valid title,
valid leasehold interests or such valid contractual rights do not, individually
or in the aggregate, have a Material Adverse Effect on Trenwick.
(ii) Trenwick and its subsidiaries:
(a) own and have good and marketable title in fee simple to the
real property owned by such party, free and clear of all mortgages,
pledges, liens, charges, encumbrances, defects, security interests,
claims, options and restrictions of all kind except for (y) minor
imperfections of title, easements and rights of way, none of which
individually or in the aggregate, materially detracts from the value
of or impairs the use of the affected property or impairs the
operations of Trenwick or any of its subsidiaries and (z) liens for
current taxes not yet due and payable;
(b) is in peaceful and undisturbed possession of the space
and/or estate under each lease under which it is a tenant, and there
are no material defaults by it as tenant thereunder; and
(c) has good and valid rights of ingress and egress to and from
all the real property owned or leased by such party from and to the
public street systems for all usual street, road and utility
purposes.
(t) Environmental. (i) Trenwick and its subsidiaries are in material compliance
with all applicable Environmental Laws.
(ii) To the knowledge of Trenwick, no facts, events or conditions with respect
to the operation of its business or the business of its subsidiaries, or the
locations of those businesses exist which could reasonably be expected to
interfere with or prevent continued compliance with, or could give rise to any
liability (including, without limitation, liability for clean up costs, personal
injury or property damage) or form the basis for any claim, action, suit,
proceeding, hearing or investigation against or involving Trenwick or any of its
subsidiaries or their respective businesses, under any applicable Environmental
Law.
(iii) Trenwick and its subsidiaries have not received any written notice, report
or other information regarding any actual or alleged violation of, or liability
under, Environmental Laws relating to Trenwick or its subsidiaries, or the
locations of the operation of their businesses, which violation or liability
could have a Material Adverse Effect on Trenwick.
(iv) There is no action, suit, claim, proceeding or investigation pending, or to
the knowledge of Trenwick, threatened against Trenwick or its subsidiaries that
alleges or would allege any violation of any applicable Environmental Laws.
(v) To the knowledge of Trenwick, neither Trenwick nor its subsidiaries has ever
generated, transported, treated, stored or disposed of any Hazardous
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Material at any site, location or facility, and no such Hazardous Material is
present on, in or under any location occupied by Trenwick or its subsidiaries,
including without limitation, containment of such Hazardous Material by means of
any underground storage tank.
Notwithstanding the foregoing, this Section 3.2(t) does not include any
representation or warranty with respect to Trenwick or any of its subsidiaries
arising in their respective capacities as reinsurer or issuer of any insurance
product.
(u) Reinsurance Contracts, Coverholders and MGAs. (i) Section 3.2(u) of the
Trenwick Disclosure Schedule contains a true and complete list of all MGAs and
Coverholders with whom each subsidiary of Trenwick does business and all
Reinsurance Contracts to which each subsidiary of Trenwick is a party as the
cedent thereunder or by or to which each subsidiary of Trenwick is bound or
subject as the cedent thereunder, as each such Reinsurance Contract may have
been amended, modified or supplemented. Except as would not, individually or in
the aggregate, have a Material Adverse Effect on Trenwick: (i) each of the
foregoing Reinsurance Contracts is valid and binding in accordance with its
terms, and is in full force and effect and (ii) neither the Subsidiaries of
Trenwick nor, to the knowledge of Trenwick, any other party thereto, is in
default in any material respect with respect to any such Reinsurance Contract,
nor to the knowledge of Trenwick does any condition exist that with notice or
lapse of time or both would constitute such a material default thereunder. None
of the contracts, treaties or arrangements involving the MGAs or Coverholders
contain "change of control" provisions and no such Reinsurance Contract contains
any provision providing that any such other party thereto may terminate, cancel
or commute the same by reason of the transactions contemplated by this Agreement
or any other provision which would be altered or otherwise become applicable by
reason of such transactions, and no party has given notice of termination,
cancellation or commutation of any such Reinsurance Contract or that it intends
to terminate, cancel or commute any such Reinsurance Contract as a result of the
transactions contemplated hereby.
(ii) Except as set forth in Section 3.2(u) of the Trenwick Disclosure Schedule,
TARCO is entitled under applicable insurance laws, rules and regulations to take
credit in its statutory financial statements in accordance with Chapter 22 of
the NAIC Accounting Practices and Procedures Manual for Property and Casualty
Insurance Companies as in effect on the date hereof, with respect to the
Reinsurance Contracts listed in Section 3.2(u) of the Trenwick Disclosure
Schedule and all such amounts are properly reflected in the statutory financial
statements of TARCO. Each of Trenwick and TARCO has no knowledge of any disputes
as to reinsurance or retrocessional coverage under, or any terms or provisions
of, any such Reinsurance Contract. To the knowledge of Trenwick and TARCO, the
financial condition of any other party to any such Reinsurance Contract is not
impaired to the extent that a default thereunder could reasonably be expected to
occur.
(v) Trenwick Investees. Other than its Subsidiaries, any publicly-traded
corporation in which Trenwick owns 100 or fewer shares of common stock, or
investments in registered investment companies, Trenwick does not have any
equity investments or other ownership interest in any corporation or other
entity.
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(w) Insurance Issued. TARCO does not currently issue and has not issued since
January 1, 1991 any primary insurance policies in the United States.
(x) Approvals and Permits. To the knowledge of Trenwick and without inquiry,
Trenwick has no reason to believe that it and its affiliates will not be able to
promptly obtain all necessary approvals, authorizations, and consents of
Governmental Entities and Lloyd's required to be obtained to consummate the
transactions contemplated by this Agreement.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1. Conduct of Business.
(a) Conduct of Business by Chartwell. Except as specifically contemplated by
this Agreement or the Stock Option Agreement (including as set forth on Section
4.1 of the Chartwell Disclosure Schedule), or as may be required by law, during
the period from the date of this Agreement to the Effective Time, Chartwell
shall, and shall cause its subsidiaries to, carry on their respective businesses
in the ordinary course substantially consistent with past practice and, to the
extent consistent therewith, use all commercially reasonable efforts to preserve
intact their current business organizations and their relationships with agents,
brokers, insureds, reinsureds and other persons having business dealings with
them. Without limiting the generality of the foregoing (but subject to the above
exceptions), during the period from the date of this Agreement to the Effective
Time, or as may be required by law, Chartwell shall not, and shall not permit
any of its subsidiaries to, without the prior written consent of Trenwick:
(i) (x) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of its
capital stock other than the regular quarterly cash dividends of $.04 per share
with respect to the Chartwell Common Stock, (y) split, combine or reclassify any
of its capital stock or issue or authorize the issuance of any other securities
in respect of, in lieu of or in substitution for shares of its capital stock or
(z) purchase, redeem or otherwise acquire any shares of outstanding capital
stock of Chartwell or any of its subsidiaries or any other securities thereof or
any rights, warrants or options to acquire any such shares;
(ii) issue, deliver, sell, grant, pledge or otherwise encumber or subject to any
Lien, any shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities (other than (x) the
issuance of Chartwell Common Stock upon the exercise of Stock Options, ESPP
Stock Options, Sharesave Stock Options or Warrants, in each case, outstanding as
of the date hereof in accordance with their present terms, (y) in accordance
with the Chartwell Rights Agreement and (z) the issuance of Chartwell Common
Stock pursuant to the Stock Option Agreement);
(iii) amend its certificate of incorporation, bylaws or other comparable
organizational documents;
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(iv) (x) acquire (by merger, amalgamation, consolidation or acquisition of stock
or assets or otherwise) any corporation, partnership, joint venture, association
or other business organization or division thereof or (y) make any material
investment either by purchase of stock or securities, contributions or capital
property, transfer or acquisition including by lease of any material amount of
assets or properties of any other individual entity, except acquisitions of
investment assets in the ordinary course of business in accordance with
Chartwell's investment guidelines and consistent with past practice;
(v) sell, lease, mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of any of its properties or assets (including securitizations)
(collectively, "Dispositions") except (a) Dispositions of investment assets in
the ordinary course of business in accordance with Chartwell's investment
guidelines and consistent with past practice and (b) Dispositions of assets
other than investment assets in the ordinary course of business consistent with
past practice and in no case exceeding 1.0 million U.S. dollars;
(vi) (x) incur any indebtedness for borrowed money or guarantee or otherwise
become responsible for any such indebtedness of another person other than
pursuant to existing line of credit arrangements of Chartwell or its
subsidiaries and letters of credit and related agreements of Chartwell and its
subsidiaries, in each case in the ordinary course of business consistent with
past practice or (y) make any loans, advances or capital contributions to, or
investments in, any other person, other than to Chartwell or to any direct or
indirect subsidiary of Chartwell and customary loans and advances to employees
and as permitted under clause (iv);
(vii) make any tax election or settle or compromise any income tax liability
that would have a Material Adverse Effect on Chartwell and its subsidiaries
taken as a whole;
(viii) make any change in accounting principles or practices used by Chartwell
or any of its subsidiaries materially affecting its assets, liabilities or
business, including any such change with respect to establishment of reserves
for unearned premiums, losses and loss adjustment expenses, except for any such
change required by reason of a concurrent change in GAAP or SAP or applicable
U.K. accounting rules or principles;
(ix) make any material capital expenditure other than in the ordinary course of
business substantially consistent with past practice and in each case not
exceeding 1.0 million U.S. dollars;
(x) (A) enter into, adopt, amend (except as may be required by law) or terminate
any bonus, profit-sharing, compensation, severance, termination, change in
control, consulting, fringe benefit, stock option, stock appreciation right,
restricted stock, performance unit, stock equivalent, stock purchase agreement,
pension, retirement, deferred compensation, employment, severance or other
employee benefit agreement, trust, plan, fund, award or other arrangement for
the benefit or welfare of any director, officer or employee in any manner, or
(B) except for (x) merit increases in salaries of non-officer employees at
regularly scheduled times substantially consistent with past practice and in
each case not exceeding a 5% increase in each individual non-officer employee's
current salary and (y) as required under existing agreements or
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benefit plans set forth on Section 3.1(h) of the Chartwell Disclosure Schedule,
increase in any manner the compensation, employee benefits or fringe benefits of
any director, officer or employee;
(xi) enter into any agreement or arrangement that limits or otherwise restricts
Chartwell or any of its subsidiaries or any successor thereto or that could,
after the Effective Time, limit or restrict the Surviving Corporation and its
affiliates (including Trenwick) or any successor thereto, from engaging or
competing in any line of business or in any geographic area;
(xii) settle or compromise any derivative suit or other litigation or claim
arising out of the transactions contemplated hereby, or any other litigation or
claim involving Chartwell if the settlement thereof involves payment of in
excess of $100,000 (other than claims for contractual benefits under any
insurance or reinsurance contract under which Chartwell or any subsidiary of
Chartwell is the insurer or reinsurer) which, for purposes of this clause (xii),
prior written consent of Trenwick shall not be unreasonably withheld;
(xiii) take or allow to be taken or fail to take any action which act or
omission would jeopardize qualification of the Merger as a "reorganization" with
the meaning of Section 368(a)(1)(A) of the Code;
(xiv) commute any corporate aggregate excess loss reinsurance contracts or
arrangements of Chartwell or any of its Subsidiaries; or
(xv) authorize any of, or commit or agree to take any of, the foregoing actions.
In addition to, and notwithstanding, the foregoing, Chartwell shall cause the
business of the Chartwell Syndicates which are the subject of a proposal for the
merger of Chartwell Syndicates 270, 741, 2741 and 544 into Chartwell Syndicate
839 for the 2000 Year of Account (set forth in Section 4.1(a) of the Chartwell
Disclosure Schedule, the "Lloyd's Business Plan") previously submitted to
Lloyd's by or on behalf of Chartwell to be conducted substantially as set forth
in the Lloyd's Business Plan, and shall not sell or otherwise transfer or
dispose of all or any material portion of its interest in any Chartwell
Syndicate without the prior written consent of Trenwick.
(b) Conduct of Business by Trenwick. Except as specifically contemplated by
this Agreement or the Stock Option Agreement (including as set forth on Section
4.1 of the Trenwick Disclosure Schedule), or as may be required by law, during
the period from the date of this Agreement to the Effective Time, Trenwick
shall, and shall cause its subsidiaries to, carry on their respective businesses
in the ordinary course substantially consistent with past practice and, to the
extent consistent therewith, use all commercially reasonable efforts to preserve
intact their current business organizations and their relationships with agents,
brokers, insureds, reinsureds and other persons having business dealings with
them. Without limiting the generality of the foregoing (but subject to the above
exceptions), during the period from the date of this
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Agreement to the Effective Time, or as may be required by law, Trenwick shall
not, and shall not permit any of its subsidiaries to, without the prior written
consent of Chartwell:
(i) (x) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of its
capital stock other than the regular quarterly cash dividends of $.26 per share
with respect to the Trenwick Common Stock, (y) split, combine or reclassify any
of its capital stock or issue or authorize the issuance of any other securities
in respect of, in lieu of or in substitution for shares of its capital stock or
(z) purchase, redeem or otherwise acquire any shares of outstanding capital
stock of Trenwick or any of its subsidiaries or any other securities thereof or
any rights, warrants or options to acquire any such shares;
(ii) issue, deliver, sell, grant, pledge or otherwise encumber or subject to any
Lien, any shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities, (other than (x) the
issuance of Trenwick Common Stock upon the exercise of Trenwick Employee Stock
Options outstanding as of the date hereof in accordance with their present terms
and (y) in accordance with the Trenwick Rights Agreement);
(iii) amend its certificate of incorporation, bylaws or other comparable
organizational documents;
(iv) (x) acquire (by merger, amalgamation, consolidation or acquisition of stock
or assets or otherwise) any corporation, partnership, joint venture, association
or other business organization or division thereof or (y) make any material
investment either by purchase of stock or securities, contributions or capital
property, transfer or acquisition including by lease of any material amount of
assets or properties of any other individual entity, except acquisitions of
investment assets in the ordinary course of business in accordance with
Trenwick's investment guidelines and consistent with past practice.
(v) sell, lease, mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of any of its properties or assets (including securitizations
) (collectively, "Dispositions") except (a) Dispositions of investment assets in
the ordinary course of business in accordance with Trenwick's investment
guidelines and consistent with past practice and (b) Dispositions of assets
other than investment assets in the ordinary course of business consistent with
past practice and in no case exceeding $1.0 million U.S. dollars;
(vi) (x) incur any indebtedness for borrowed money or guarantee or otherwise
become responsible for any such indebtedness of another person other than
pursuant to existing line of credit arrangements of Trenwick or its subsidiaries
and letters of credit and related agreements of Trenwick and its subsidiaries,
in each case in the ordinary course of business consistent with past practice or
(y) make any loans, advances or capital contributions to, or investments in, any
other person, other than to Trenwick or to any direct or indirect subsidiary of
Trenwick and customary loans and advances to employees and as permitted under
clause (iv);
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(vii) make any tax election or settle or compromise any income tax liability
that would have a Material Adverse Effect on Trenwick and its subsidiaries taken
as a whole;
(viii) make any change in accounting principles or practices used by Trenwick or
any of its subsidiaries materially affecting its assets, liabilities or
business, including any such change with respect to establishment of reserves
for unearned premiums, losses and loss adjustment expenses, except for any such
change required by reason of a concurrent change in GAAP or SAP or applicable
U.K. accounting rules or principles;
(ix) make any material capital expenditure other than in the ordinary course of
business substantially consistent with past practice and in no case exceeding
1.0 million U.S. dollars;
(x) (A) enter into, adopt, amend (except as may be required by law) or terminate
any bonus, profit-sharing, compensation, severance, termination, change in
control, consulting, fringe benefit, stock option, stock appreciation right,
restricted stock, performance unit, stock equivalent, stock purchase agreement,
pension, retirement, deferred compensation, employment, severance or other
employee benefit agreement, trust, plan, fund, award or other arrangement for
the benefit or welfare of any director, officer or employee in any manner, or
(B) except (x) merit increases in salaries of non-officer employees at regularly
scheduled times substantially consistent with past practice and (y) as required
under existing agreements or Trenwick Benefit Plans, increase in any manner the
compensation, employee benefits or fringe benefits of any director, officer or
employee;
(xi) enter into any agreement or arrangement that limits or otherwise restricts
Trenwick or any of its subsidiaries or any successor thereto or that could,
after the Effective Time, limit or restrict the Surviving Corporation and its
affiliates (including Chartwell) or any successor thereto, from engaging or
competing in any line of business or in any geographic area;
(xii) settle or compromise any derivative suit or other litigation or claim
arising out of the transactions contemplated hereby, or any other litigation or
claim involving Trenwick if the settlement thereof involves payment of in excess
of $100,000 (other than claims for contractual benefits under any insurance or
reinsurance contract under which Trenwick or any subsidiary of Trenwick is the
insurer or reinsurer) which, for purposes of this clause (xii), prior written
consent of Chartwell shall not be unreasonably withheld;
(xiii) take or allow to be taken or fail to take any action which act or
omission would jeopardize qualification of the Merger as a "reorganization" with
the meaning of Section 368(a)(1)(A) of the Code;
(xiv) commute any corporate aggregate excess of loss reinsurance contracts or
arrangements of Trenwick or any of its Subsidiaries; or
(xv) authorize any of, or commit or agree to take any of, the foregoing actions.
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(c) Other Actions. Except as required by law, and subject to Section 4.2(a),
Chartwell and Trenwick shall not, and shall not permit any of their respective
subsidiaries to, voluntarily take any action that would, or that could
reasonably be expected to, result in (i) any of the representations and
warranties of such party set forth in this Agreement or the Stock Option
Agreement that are qualified as to materiality being untrue at the Effective
Time, (ii) any of such representations and warranties that are not so qualified
being untrue in any material respect at the Effective Time, or (iii) any of the
conditions to the Merger set forth in Article VI not being satisfied.
(d) Advice of Changes. Chartwell and Trenwick shall promptly advise the other
party orally and in writing to the extent it has knowledge of (i) any
representation or warranty made by it contained in this Agreement or the Stock
Option Agreement that is qualified as to materiality becoming untrue or
inaccurate in any respect or any such representation or warranty that is not so
qualified becoming untrue or inaccurate in any material respect, (ii) the
failure by it to comply in any material respect with or to satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement or the Stock Option Agreement and (iii) any
change or event having, or which, insofar as can reasonably be foreseen at the
time, would reasonably be expected to have a Material Adverse Effect on such
party or on the truth of their respective representations and warranties or the
ability to satisfy the conditions set forth in Article VI; provided, however,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties (or remedies with respect thereto) or the
conditions to the obligations of the parties under this Agreement or the Stock
Option Agreement.
SECTION 4.2. No Solicitation by Chartwell.
(a) Chartwell shall not, nor shall it permit any of its subsidiaries to, nor
shall it authorize or permit any of its directors, officers or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, and it shall use
commercially reasonable efforts to ensure that such persons do not directly or
indirectly, (i) solicit, initiate or encourage (including by way of furnishing
non-public information), or take any other action designed to facilitate, any
inquiries or the making of any proposal which constitutes any Chartwell Takeover
Proposal (as defined below) or (ii) participate in any discussions or
negotiations regarding any Chartwell Takeover Proposal; provided, however, that
if at any time prior to Chartwell Stockholder Approval the Board of Directors of
Chartwell determines in good faith, after consultation with outside counsel,
that it is necessary to do so in order to comply with its fiduciary duties to
Chartwell's stockholders under applicable law, Chartwell may, in response to a
Chartwell Superior Proposal (as defined in Section 4.2(b)) which was not
solicited by it or which did not otherwise result from a breach of this Section
4.2(a), and subject to providing prior written notice of its decision to take
such action to Trenwick and compliance with Section 4.2(c), (x) furnish
information with respect to Chartwell and its subsidiaries to any person making
a Chartwell Superior Proposal pursuant to a customary confidentiality agreement
(as determined by Chartwell after consultation with its outside counsel) and (y)
participate in discussions or negotiations regarding such Chartwell Superior
Proposal. For purposes of this Agreement, "Chartwell Takeover Proposal" means
any inquiry, proposal or offer from any person relating to any direct or
indirect acquisition or
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purchase of a business that constitutes 15% or more of the net revenues, net
income or assets of Chartwell and its subsidiaries, taken as a whole, or 15% or
more of any class of equity securities of Chartwell or any of its subsidiaries,
any tender offer or exchange offer that if consummated would result in any
person beneficially owning 15% or more of any class of equity securities of
Chartwell or any of its subsidiaries, or any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving Chartwell or any of its Significant Subsidiaries, other than the
transactions contemplated by this Agreement or the Stock Option Agreement.
(b) Except as expressly permitted by this Section 4.2, neither the Board of
Directors of Chartwell nor any committee thereof shall (i) withdraw or modify,
or propose publicly to withdraw or modify, in a manner adverse to Trenwick, the
approval or recommendation by such Board of Directors or such committee of this
Agreement and the transactions contemplated hereby, (ii) approve or recommend,
or propose publicly to approve or recommend, any Chartwell Takeover Proposal, or
(iii) cause Chartwell to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement (each a "Chartwell
Acquisition Agreement") related to any Chartwell Takeover Proposal.
Notwithstanding the foregoing, the Board of Directors of Chartwell may terminate
this Agreement (upon payment to Trenwick of the Termination Fee required by
Section 5.14(b)) and concurrently with or after such termination, if it so
chooses, cause Chartwell to enter into any Chartwell Acquisition Agreement with
respect to any Chartwell Superior Proposal, and withdraw its approval and
recommendation to stockholders of the transactions contemplated hereby, but only
at a time that is after the fifth business day following Trenwick's receipt of
written notice advising Trenwick that the Board of Directors of Chartwell is
prepared to accept a Chartwell Superior Proposal, specifying the material terms
and conditions of such Chartwell Superior Proposal and identifying the person
making such Chartwell Superior Proposal, all of which information will be kept
confidential by Trenwick pursuant to the terms of the confidentiality agreement,
dated May 20, 1998 between Trenwick and Chartwell. For purposes of this
Agreement, a "Chartwell Superior Proposal" means any proposal made by a third
party to acquire, directly or indirectly, including pursuant to a tender offer,
exchange offer, merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction, for consideration consisting of
cash and/or securities, more than 50% of the combined voting power of the shares
of Chartwell Common Stock then outstanding or all or substantially all the
assets of Chartwell and otherwise on terms which the Board of Directors of
Chartwell determines in its good faith judgment (based on the advice of a
financial advisor of nationally recognized reputation) to be more favorable to
Chartwell's stockholders than this Agreement and the transactions contemplated
hereby and for which financing, to the extent required, is then committed or
which, in the good faith judgment of the Board of Directors of Chartwell, is
reasonably capable of being obtained by such third party.
(c) In addition to the obligations of Chartwell set forth in paragraphs (a) and
(b) of this Section 4.2, Chartwell shall immediately advise Trenwick orally and
in writing of any request for non-public information or of any Chartwell
Takeover Proposal, the material terms and conditions of such request or
Chartwell Takeover Proposal and the identity of the person making such request
or Chartwell Takeover Proposal. Chartwell will keep Trenwick reasonably informed
of the status and material details (including amendments or proposed amendments)
of
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any such request or Chartwell Takeover Proposal. Any such information provided
to Trenwick will be kept confidential by Trenwick pursuant to the terms of the
confidentiality agreement dated May 20, 1998 between Trenwick and Chartwell.
Nothing contained in this Section 4.2 shall prohibit Chartwell from taking and
disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to Chartwell's
stockholders if, in the good faith judgment of the Board of Directors of
Chartwell, after consultation with outside counsel, failure so to disclose would
be inconsistent with its obligations under applicable law.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. Preparation of the Form S-4 and the Joint Proxy Statement. As
soon as is reasonably practicable following the date of this Agreement,
Chartwell and Trenwick shall prepare and file with the SEC the Joint Proxy
Statement and a registration statement of Trenwick on Form S-4 with respect to
the transactions contemplated by this Agreement. Each of Chartwell and Trenwick
shall use its commercially reasonable efforts to have the Joint Proxy Statement
cleared by the SEC under the Exchange Act and the Form S-4 declared effective
under the Securities Act as promptly as practicable after such filing. Chartwell
will use its commercially reasonable efforts to cause the Joint Proxy Statement
to be mailed to Chartwell's stockholders, and Trenwick will use its commercially
reasonable efforts to cause the Joint Proxy Statement to be mailed to Trenwick's
stockholders, in each case as promptly as practicable after the Form S-4 is
declared effective under the Securities Act. Trenwick shall also take any action
(other than qualifying to do business in any jurisdiction in which it is not now
so qualified or to file a general consent to service of process) required to be
taken under any applicable state securities laws in connection with the issuance
of Trenwick Common Stock in the Merger and Chartwell shall furnish all
information concerning Chartwell and its stockholders as may be reasonably
requested in connection with any such action. No filing of, or amendment or
supplement to, the Form S-4 or the Joint Proxy Statement will be made by
Trenwick or Chartwell without providing the other parties the opportunity to
review and comment thereon. Trenwick will advise Chartwell, promptly after it
receives notice thereof, of the time when the Form S-4 has become effective or
any supplement or amendment has been filed, the issuance of any stop order, the
suspension of the qualification of Trenwick Common Stock issuable in connection
with the Merger for offering or sale in any jurisdiction, or any request by the
SEC for amendment of the Joint Proxy Statement or the Form S-4 or comments
thereon or responses thereto or requests by the SEC for additional information.
If at any time prior to the Effective Time any information relating to Trenwick
or Chartwell, or any of their respective affiliates, officers or directors,
should be discovered by Trenwick or Chartwell which should be set forth in an
amendment or supplement to any of the Form S-4 or Joint Proxy Statement, so that
any such documents would not include any misstatement of a material fact or omit
to state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, the party which
discovered such information shall promptly notify the other party hereto and an
appropriate amendment or supplement describing such information
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shall be promptly filed with the SEC and, to the extent required by law,
disseminated to the stockholders of Trenwick and Chartwell.
SECTION 5.2. Stockholder Approval.
(a) Chartwell, acting through its Board of Directors, shall, in accordance with
applicable law and Chartwell's Certificate of Incorporation and By-laws, (i)
convene a meeting of its stockholders as soon as practicable after the date of
this Agreement to consider and vote on the approval of this Agreement and the
Merger (the "Chartwell Stockholders Meeting") and (ii) subject to the fiduciary
duties of its Board of Directors to stockholders under applicable law, (A)
solicit proxies from its stockholders to obtain the approval of its stockholders
with respect to this Agreement and (B) include in the Joint Proxy Statement the
recommendation of the Board of Directors of Chartwell that the stockholders of
Chartwell vote in favor of the approval of this Agreement and the Merger.
(b) Trenwick, acting through its Board of Directors, shall, in accordance with
applicable law and Trenwick's Restated Certificate of Incorporation and By-laws,
(i) convene a meeting of its stockholders as soon as practicable after the date
of this Agreement to consider and vote on the approval of the issuance of
Trenwick Common Stock in the Merger (the "Trenwick Stockholders Meeting"), (ii)
solicit proxies from its stockholders to obtain the approval of its stockholders
with respect thereto and (iii) include in the Joint Proxy Statement the
recommendation of the Board of Directors of Trenwick that the stockholders of
Trenwick vote in favor of such issuance.
(c) Chartwell and Trenwick shall coordinate and cooperate with respect to the
timing of such meetings and shall endeavor to hold such meetings on the same day
and as soon as practicable after the date hereof.
SECTION 5.3. Access to Information; Confidentiality. Each of Chartwell and
Trenwick shall, and shall cause each of its respective subsidiaries to, afford
to the other party and to the officers, employees, counsel, financial advisors
and other representatives of such other party, reasonable access during normal
business hours during the period prior to the Effective Time to all its
respective properties, books, contracts, commitments, personnel and records and,
during such period, each of Chartwell and Trenwick shall, and shall cause each
of its respective subsidiaries to, furnish as promptly as practicable to the
other party (a) a copy of each report, schedule, registration statement and
other document filed by it during such period pursuant to the requirements of
domestic or foreign federal or state securities or insurance laws and (b) all
other information concerning its business, properties and personnel as such
other party may from time to time reasonably request. Trenwick will hold, and
will cause its subsidiaries and each of their respective directors, officers,
employees, counsel, financial advisors and other representatives and affiliates
to hold, any non-public information in confidence to the extent required by, and
in accordance with, the provisions of the existing confidentiality agreement,
dated May 20, 1998, between Trenwick and Chartwell, and Chartwell will hold, and
will cause its subsidiaries and each of their respective directors, officers,
employees, counsel, financial advisors and other representatives and affiliates
to hold, any non-public information in confidence to the extent required by, and
in accordance with, the provisions of the confidentiality agreement dated May
26, 1998, between Chartwell and Trenwick (collectively, the "Confidentiality
Agreements").
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SECTION 5.4. Commercially Reasonable Efforts. Upon the terms and subject to
the conditions and other agreements set forth in this Agreement, each of the
parties agrees to use its commercially reasonable efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement and the Stock Option Agreement. Nothing set forth in this Section 5.4
will limit or affect actions permitted to be taken pursuant to Section 4.2.
SECTION 5.5. Benefit Plans.
(a) Trenwick will cause those employees of Chartwell or its subsidiaries who are
employed at the Effective Time by the Surviving Corporation or its subsidiaries
(the "Continuing Employees") to be provided with employee benefits other than
severance benefits which are covered in clause (b) below which are no less
favorable in the aggregate than those benefits provided to other similar
situated employees of Trenwick and its subsidiaries.
For purposes of the employee benefits to be provided to the Continuing
Employees, solely to the extent permissible pursuant to applicable law, Trenwick
will cause the Continuing Employees to receive full credit for purposes of
eligibility and vesting (but not benefit accrual) for such Continuing Employees'
service with Chartwell or its subsidiaries prior to the Effective Time. Such
service also shall apply for purposes of satisfying any waiting periods,
evidence of insurability requirements, or the application of any preexisting
condition limitation.
(b) Trenwick shall provide, or cause the Surviving Corporation to provide,
severance benefits to Continuing Employees whose employment is terminated
without cause by Trenwick or its subsidiaries during the one year period
following the Effective Time, which severance benefits are no less favorable in
the aggregate than those severance benefits provided to other similarly situated
employees of Trenwick or its subsidiaries, giving full credit to the Continuing
Employees for time of service with Chartwell or its subsidiaries.
SECTION 5.6. Indemnification and Insurance.
(a) From and after the Effective Time, Trenwick agrees that it will indemnify
and hold harmless each person who is, or has been at any time prior to the date
hereof or who becomes prior to the Effective Time, an officer or director of
Chartwell or any of its subsidiaries (the "Indemnified Parties"), in respect of
acts or omissions occurring on or prior to the Effective Time (including but not
limited to the transactions contemplated by this Agreement), to the same extent
provided under the Certificate of Incorporation and By-laws of Chartwell or the
certificate of incorporation or bylaws of any such subsidiary as in effect on
the date hereof; provided, that such indemnification shall be subject to any
limitation imposed from time to time under applicable law. The Indemnified
Parties shall be entitled to advancement of expenses provided such Indemnified
Party provides Trenwick with an undertaking to reimburse Trenwick in a form
comparable to the undertaking provided for by the DGCL. Any determination to be
made as to whether any Indemnified Party has met any standard of conduct imposed
by law shall be made
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by legal counsel reasonably acceptable to such Indemnified Party and the
Surviving Corporation, retained at the Surviving Corporation's expense.
(b) Trenwick will cause to be maintained in effect for a period of not less than
six years from the Effective Time the current directors' and officers' liability
insurance, fiduciary liability insurance and indemnification policies maintained
by Chartwell and its subsidiaries to the extent that such policies provide
coverage for any matter existing or act or omission occurring on or prior to the
Effective Time (the "D&O Insurance") for all current or former directors,
officers or employees of Chartwell or any subsidiary on the date of this
Agreement, so long as the annual premium therefor would not be in excess of two
hundred percent (200%) of the last annual premium paid prior to the date of this
Agreement (200% of such premium, the "Maximum Premium"); provided, however, that
Trenwick may, in lieu of maintaining such existing D&O Insurance as provided
above, cause no less favorable coverage to be provided under any policy
maintained for the benefit of the directors and officers of Trenwick or any of
its subsidiaries, so long as (i) the insurance company providing such coverage
has an A.M. Best Company rating of A or better and (ii) the material terms
thereof are no less advantageous than the existing D&O Insurance. If the
existing D&O Insurance expires, is terminated or cancelled or if the annual
premium would exceed the Maximum Premium during such six-year period, Trenwick
will use reasonable efforts to cause to be obtained as much D&O Insurance as can
be obtained for the remainder of such period for an annualized premium not in
excess of the Maximum Premium, on terms and conditions no less advantageous than
the existing D&O Insurance to the extent commercially available. Section 5.6 (b)
of the Chartwell Disclosure Schedule sets forth the amount of Maximum Premium.
(c) The provisions of this Section 5.6 are in addition to, and not in
substitution for any other rights that an Indemnified Party may have under the
applicable certificate of incorporation or by-laws of or agreements with
Chartwell or any of its subsidiaries or under applicable law. Trenwick agrees to
pay all costs and expenses (including fees and expenses of counsel) that may be
incurred by any Indemnified Party in successfully enforcing the indemnity or
other obligations under this Section. The provisions of this Section shall
survive the Merger and are intended to be for the benefit of, and shall be
enforceable by, each of the Indemnified Parties, their heirs and their
representatives.
(d) In the event that Trenwick or any of its successors or assigns (i)
consolidates with or merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, proper provision will be made so that
the successors and assigns of Trenwick assume the obligations set forth in this
Section 5.6.
SECTION 5.7. Public Announcements. Trenwick and Chartwell will consult with
each other before issuing, and provide each other the opportunity to review,
comment upon, and concur with any press release or other public statements with
respect to the transactions contemplated by this Agreement, including the Merger
and the Stock Option Agreement, and shall not issue any such press release or
make any such public statement prior to such consultation, except as either
party may determine is required by applicable law, court process or
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by obligations pursuant to any listing agreement with any national securities
exchange or authorized interdealer quotation system. The parties agree that the
initial press release to be issued with respect to the transactions contemplated
by this Agreement and the Stock Option Agreement shall be in the form hereto
agreed by the parties.
SECTION 5.8. Consents, Approvals and Filings. (a) Chartwell and Trenwick will
make and cause their respective subsidiaries to make all necessary registrations
and filings, as promptly as practicable, including those required under the HSR
Act, the Securities Act, the Exchange Act, state securities laws and state
insurance laws, in order to facilitate prompt consummation of the Merger, the
Stock Option Agreement and the other transactions contemplated by this
Agreement. In addition, Chartwell and Trenwick will each use their commercially
reasonable efforts, and will cooperate fully with each other (i) to comply as
promptly as practicable with all governmental requirements applicable to the
Merger, the Stock Option Agreement and the other transactions contemplated by
this Agreement, and (ii) to obtain as promptly as practicable all necessary
permits, orders or other consents, approvals or authorizations from, or to avoid
an action or proceeding by, any Governmental Entity and consents, approvals or
waivers from all third parties (including Lloyd's) necessary in connection with
the consummation of the Merger, the Stock Option Agreement and the other
transactions contemplated by this Agreement. Each of Chartwell and Trenwick
shall use its commercially reasonable efforts to provide such information and
communications to Governmental Entities and Lloyd's as they may reasonably
request.
(b) Each of the parties shall provide to the other party copies of all
applications or other communications in advance of filing or submission of such
applications or communications to Governmental Entities or Lloyd's in connection
with this Agreement. Trenwick shall give to Chartwell prompt written notice if
it receives any notice or other communication from any Insurance Regulator or
Lloyd's in connection with the transactions contemplated by this Agreement, and,
in the case of any such notice or communication which is in writing, shall
promptly furnish Chartwell with a copy thereof. Each of the parties shall give
to the other party reasonable prior written notice of the time and place when
any meetings may be held by it with Insurance Regulators or Lloyd's in
connection with the transactions contemplated by this Agreement, and the party
to whom such notice shall be given shall have the right to have a representative
or representatives present at any such meeting.
(c) Chartwell shall give prompt notice to Trenwick, and Trenwick shall give
prompt notice to Chartwell, of (i) any representation or warranty made by it
contained in this Agreement that is qualified as to materiality becoming untrue
or inaccurate in any respect or any such representation or warranty that is not
so qualified becoming untrue or inaccurate in any material respect or (ii) the
failure by it to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
SECTION 5.9. NASDAQ Approval. Trenwick shall use its reasonable best efforts
to cause the shares of Trenwick Common Stock to be issued in the Merger and the
other
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transactions contemplated by this Agreement to be approved for listing on the
NASDAQ National Market, subject to official notice of issuance, as promptly as
practicable after the date hereof and in any event prior to the Effective Time.
SECTION 5.10. Affiliates and Certain Stockholders. Prior to the Closing Date,
Chartwell shall deliver to Trenwick a list identifying all persons who are, at
the time of the Chartwell Stockholders Meeting, "affiliates" of Chartwell for
purposes of Rule 145 under the Securities Act. Chartwell shall furnish such
information and documents as Trenwick may reasonably request for the purpose of
reviewing such list. Chartwell shall use its commercially reasonable efforts to
cause each such person to execute and deliver to Trenwick on or prior to the
Closing Date a written agreement in a form satisfactory to Trenwick (an
"Affiliate Agreement"), that such person will not offer or sell or otherwise
dispose of any of the shares of Trenwick Common Stock issued to such person
pursuant to the Merger in violation of the Securities Act or the rules or
regulations promulgated by the SEC thereunder. The certificates representing
Trenwick Common Stock received by such affiliates in the Merger shall bear a
customary legend regarding applicable Securities Act transfer restrictions and
the provisions of this Section 5.10.
SECTION 5.11. Tax Matters. Trenwick and Chartwell shall each use all
reasonable efforts to cause the Merger to qualify as a reorganization under the
provisions of Section 368(a)(1) of the Code, and neither shall knowingly take,
nor shall it permit any subsidiary knowingly to take, any action that would
jeopardize such treatment.
SECTION 5.12. Letters of Accountants. (a) Chartwell shall use its reasonable
efforts to cause to be delivered to Trenwick two letters from Chartwell's
independent accountants, one dated a date within two business days before the
date on which the Form S-4 shall become effective and one dated a date within
two business days before the Effective Time, each addressed to Trenwick, in form
and substance reasonably satisfactory to Trenwick and customary in scope and
substance for comfort letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4.
(b) Trenwick shall use its reasonable efforts to cause to be delivered to
Chartwell two letters from Trenwick's independent accountants, one dated a date
within two business days before the date on which the Form S-4 shall become
effective and one dated a date within two business days before the Effective
Time, each addressed to Chartwell, in form and substance reasonably satisfactory
to Chartwell and customary in scope and substance for comfort letters delivered
by independent public accountants in connection with registration statements
similar to the Form S-4.
SECTION 5.13. Stockholder Litigation. Each of Chartwell and Trenwick shall (to
the extent their interests do not diverge) cooperate in the defense of any
litigation against Chartwell or Trenwick, as applicable, and its directors and
officers relating to the transactions contemplated by this Agreement and the
Stock Option Agreement.
SECTION 5.14. Fees and Expenses. (a) Except as provided in this Section 5.14,
all fees and expenses incurred in connection with this Agreement, the Stock
Option Agreement and the transactions contemplated by this Agreement and the
Stock Option Agreement shall be
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paid by the party incurring such fees or expenses, whether or not the Merger is
consummated, except that each of Chartwell and Trenwick shall bear and pay
one-half of the costs and expenses incurred in connection with (1) the filing,
printing and mailing of the Form S-4 and the Joint Proxy Statement (including
SEC filing fees) and (2) the filings of the premerger notification and report
forms under the HSR Act (including filing fees). Each of Chartwell and Trenwick
shall file any return with respect to, and shall pay, any state or local taxes
(including any penalties or interest with respect thereto), if any, which are
attributable to the transfer of the beneficial ownership of real property of
Chartwell and Trenwick (collectively, the "Real Estate Transfer Taxes") as a
result of the transactions contemplated by this Agreement. Trenwick and
Chartwell shall cooperate with each other in the filing of such returns,
including supplying in a timely manner a complete list of all real property
interests held by it and any information with respect to such property that is
reasonably necessary to complete such returns. The fair market value of any real
property of Trenwick or Chartwell subject to the Real Estate Transfer Taxes
shall be as agreed to between Chartwell and Trenwick.
(b) In the event that (w) the Board of Directors of Chartwell shall terminate
this Agreement pursuant to Section 7.1(c)(ii) hereof, (x) the Board of Directors
of Trenwick shall terminate this Agreement pursuant to Section 7.1(d)(ii), (y)
the Board of Directors of Trenwick shall terminate this Agreement pursuant to
Section 7.1(d)(iii) hereof or the Board of Directors of Chartwell shall
terminate this Agreement pursuant to Section 7.1(c)(iii) and in either case
there shall have been made or commenced a Chartwell Takeover Proposal (other
than the Merger) with respect to Chartwell, or (z) the Board of Directors of
Trenwick shall terminate this Agreement pursuant to Section 7.1(d)(i) and within
one year of such termination, Chartwell shall have entered into a definitive
agreement with respect to a Chartwell Superior Proposal, then Chartwell shall,
as a condition precedent to such termination of this Agreement in the cases of
clauses (w), (x), (y) above, and, in the case of (z) above, within 24 hours of
such event, pay to Trenwick $6.5 million U.S. dollars (the "Termination Fee") in
cash by wire transfer of same day funds.
(c) If the Board of Directors of Trenwick shall terminate this Agreement
pursuant to Section 7.1(d)(i) then Chartwell shall pay or cause to be paid to
Trenwick on the date of such termination $2.0 million U.S. dollars in respect of
liquidated damages; provided, however, that such liquidated damages shall be
credited towards any Termination Fee that becomes payable as contemplated by
Section 5.14(b)(z) hereof. If within 1 year of such termination Chartwell shall
have entered into a definitive agreement with respect to a Chartwell Superior
Proposal, such that the Termination Fee contemplated by Section 5.14(b)(z) shall
become payable, the aforementioned $2.0 million U.S. dollars in liquidated
damages shall be allowed as a credit against such Termination Fee.
(d) Chartwell acknowledges that the agreements contained in this Section 5.14(b)
are an integral part of the transactions contemplated by this Agreement, and
that, without these agreements, Trenwick would not enter into this Agreement;
accordingly, if Chartwell fails promptly to pay the amount due pursuant to this
Section 5.14, and, in order to obtain such payment, Trenwick commences a suit
which results in a judgment against Chartwell for the fee set forth in this
Section 5.14, Chartwell shall pay to Trenwick its costs and expenses (including
attorneys' fees and expenses) in connection with such suit, together with
interest on the amount
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of the fee at the prime rate as reported in the Wall Street Journal on the date
such payment was required to be made.
SECTION 5.15. Reinsurance Agreement. Chartwell shall use its commercially
reasonable efforts to obtain not later than the Effective Time the Reinsurance
Agreement on the terms set forth in Section 3.1(z) of the Chartwell Disclosure
Schedule.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. Each of the Chartwell Stockholder Approval and the
Trenwick Stockholder Approval shall have been obtained.
(b) Governmental, Regulatory and Lloyd's Consents. All filings required to be
made prior to the Effective Time with, and all consents, approvals, permits and
authorizations required to be obtained prior to the Effective Time from,
Governmental Entities or Lloyd's, including, without limitation, those set forth
in Sections 3.1(d) and 3.2(d) of the Disclosure Schedule, in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by Chartwell and Trenwick shall have been made
or obtained (as the case may be); provided, however, that such consents,
approvals, permits and authorizations may be subject to conditions customarily
imposed by insurance regulatory authorities or Lloyd's and other conditions that
are consistent with the parties' obligations to use commercially reasonable
efforts to complete the transactions contemplated hereby.
(c) HSR Act. The waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have been terminated or shall have expired.
(d) No Injunctions or Restraints. No preliminary or permanent injunction,
judgment, order, decree, statute, law, ordinance, rule or regulation, entered,
enacted, promulgated, enforced or issued by any court, arbitrator, Insurance
Regulator or any other Government Entity of competent jurisdiction or other
legal restraint or prohibition (collectively, "Restraints") shall be in effect
(i) preventing the consummation of the Merger or any of the transactions
contemplated by this Agreement (ii) prohibiting or limiting the ownership or
operation by Trenwick or Chartwell and their respective subsidiaries of any
material portion of the business or assets of Trenwick or Chartwell and their
respective subsidiaries taken as a whole, in the event that the Merger or any of
the transactions contemplated by this Agreement is consummated as contemplated
hereby, or (iii) compelling Trenwick or Chartwell and their respective
subsidiaries to dispose of or hold separate any material portion of the business
or assets of Trenwick or Chartwell and their respective subsidiaries taken as a
whole, in the event that the Merger or any of the other transactions
contemplated by this Agreement is consummated
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as contemplated hereby; provided, however, that the party invoking the condition
shall have used reasonable efforts to prevent the entry of any such Restraints
and to appeal as promptly as possible any such Restraints that may be entered.
(e) Form S-4. The Form S-4 shall have become effective under the Securities Act
and shall not be the subject of any stop order or proceedings seeking a stop
order.
(f) NASDAQ. The shares of Trenwick Common Stock to be issued in the Merger and
the other transactions contemplated by this Agreement shall have been approved
for trading on NASDAQ, subject to official notice of issuance.
(g) Third-Party Consents. All consents and waivers of third parties (other than
Governmental Entities) to the consummation of the Merger and the transactions
contemplated by this Agreement that are set forth in Section 3.1(d) of the
Chartwell Disclosure Schedule and 3.2(d) of the Trenwick Disclosure Schedule
shall have been obtained, other than those which, if not obtained do not have,
and are not likely to have, individually or in the aggregate, a Material Adverse
Effect on Trenwick or Chartwell.
SECTION 6.2. Conditions to Obligation of Trenwick. The obligation of Trenwick
to effect the Merger is further subject to the satisfaction or waiver by
Trenwick at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties of
Chartwell set forth herein, shall be true and correct as of the date of this
Agreement and as of the Effective Time as though made on and as of the Effective
Time (except to the extent expressly made as of an earlier date, in which case
as of such date), except where the failure of such representations and
warranties to be so true and correct (without giving effect to any limitation as
to "materiality" or "material adverse effect" set forth therein) does not have,
and is not likely to have, individually or in the aggregate, a Material Adverse
Effect on Chartwell, and Trenwick shall have received a certificate signed on
behalf of Chartwell by an executive officer of Chartwell to the effect set forth
in this paragraph.
(b) Performance of Obligations of Chartwell. Chartwell shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and Trenwick shall have received a
certificate signed on behalf of Chartwell by an executive officer of Chartwell
to such effect.
(c) Tax Opinion. Trenwick shall have received an opinion of its special tax
counsel, Baker & McKenzie, in form and substance satisfactory to Trenwick, dated
the Effective Time, to the effect that the Merger will be treated as a
reorganization under Section 368(a)(1) of the Code. In rendering its opinion
pursuant to this Section 6.2(c), Baker & McKenzie shall be entitled to rely upon
representations of officers of Chartwell and Trenwick.
(d) No Material Adverse Change. At any time after the date of this Agreement
there shall not have occurred any Material Adverse Change relating to Chartwell;
provided, that this condition shall no longer be applicable following the
Chartwell Stockholder Approval.
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(e) Ratings. None of the claims-paying or financial strength ratings assigned
by A.M. Best & Co. or Standard & Poor's Corporation to Chartwell or its
Subsidiaries, as in effect on the date of this Agreement, shall have been
lowered on or prior to the Effective Time (other than as a result of the
announcement or consummation of the transactions contemplated hereby), and no
such ratings shall have been placed on credit watch with negative implications
(other than as a result of the announcement or consummation of the transactions
contemplated hereby) without being reversed on or prior to the Effective Time.
(f) Reinsurance Agreement. Chartwell shall have obtained the Reinsurance
Agreement which shall be effective at the Effective Time.
(g) Opinion. Trenwick shall have received the opinion of LeBoeuf, Lamb, Greene
& MacRae, L.L.P., in the form set forth as Exhibit 6.2(g) hereto, to the effect
that the Merger will not constitute a "change of control" as defined in the
Contingent Interest Notes Indenture.
SECTION 6.3. Conditions to Obligation of Chartwell. The obligation of
Chartwell to effect the Merger is further subject to the satisfaction or waiver
by Chartwell at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties of
Trenwick set forth herein, shall be true and correct as of the date of this
Agreement and as of the Effective Time as though made on and as of the Effective
Time (except to the extent expressly made as of an earlier date, in which case
as of such date) except where the failure of such representations and warranties
to be so true and correct (without giving effect to any limitation as to
"materiality" or "material adverse effect" set forth therein) does not have, and
is not likely to have, individually or in the aggregate, a Material Adverse
Effect on Trenwick, and Chartwell shall have received a certificate signed on
behalf of Trenwick by an executive officer of Trenwick to the effect set forth
in this paragraph.
(b) Performance of Obligations of Trenwick. Trenwick shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and Chartwell shall have received a
certificate signed on behalf of Trenwick by an executive officer of Trenwick to
such effect.
(c) Tax Opinion. Chartwell shall have received an opinion of its counsel,
LeBoeuf, Lamb, Greene & MacRae, L.L.P., in form and substance satisfactory to
Chartwell, dated the Effective Time, to the effect that the Merger will be
treated as a reorganization under Section 368(a)(1) of the Code. In giving such
opinion, LeBoeuf, Lamb, Greene & MacRae, L.L.P. shall be entitled to rely upon
representations of officers of Trenwick and Chartwell.
(d) Material Adverse Change. At any time after the date of this Agreement,
there shall not have occurred any Material Adverse Change relating to Trenwick.
(e) Ratings. None of the claims-paying or financial strength ratings assigned
by A.M. Best & Co. or Standard & Poor's Corporation to Trenwick or its
Subsidiaries, as in effect on the date of this Agreement, shall have been
lowered on or prior to the Effective Time
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(other than as a result of the announcement or consummation of the transactions
contemplated hereby), and no such ratings shall have been placed on credit watch
with negative implications (other than as a result of the announcement or
consummation of the transactions contemplated hereby) without being reversed on
or prior to the Effective Time.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination. Anything herein contained or elsewhere to the
contrary notwithstanding, this Agreement may be terminated and the Merger
contemplated herein may be abandoned at any time prior to the Effective Time,
whether before or after the Chartwell Stockholder Approval or the Trenwick
Stockholder Approval:
(a) By the mutual written consent of the Board of Directors of Trenwick and the
Board of Directors of Chartwell;
(b) By the written notice by either of the Board of Directors of Trenwick or of
the Board of Directors of Chartwell:
(i) if the Merger shall not have become effective on or before December 31,
1999; provided, however, that the right to terminate this Agreement under this
Section 7.1(b)(i) shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of, or resulted in, the
failure of the Merger to occur on or prior to such date;
(ii) if Trenwick fails to obtain the required approval of its stockholders at
the Trenwick Stockholders Meeting; or
(iii) if any Governmental Entity shall have issued an order, decree or ruling or
taken any other action (which order, decree, ruling or other action the parties
hereto shall use their commercially reasonable efforts to lift) in each case
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other action
shall have become final and nonappealable;
(c) By the Board of Directors of Chartwell:
(i) if Trenwick (x) breaches or fails in any material respect to perform or
comply with any of its material covenants and agreements contained herein or (y)
breaches its representations and warranties in any material respect and such
breach would have or would be reasonably likely to have a Material Adverse
Effect on Trenwick and its subsidiaries, in each case such that the conditions
set forth in Section 6.1 and Section 6.3 would not be satisfied; provided,
however, that if any breach is curable by the breaching party through the
exercise of the breaching party's best efforts and for so long as the breaching
party shall be so using its best efforts to cure such breach, Chartwell may not
terminate this Agreement pursuant to this Section 7.1(c)(i);
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(ii) as provided in Section 4.2(b); provided, that Chartwell shall have given
Trenwick forty-eight (48) hours advance notice of any termination pursuant to
this Section 7.1(c)(ii) and that Chartwell shall have paid Trenwick the
Termination Fee required to be paid by Chartwell pursuant to Section 5.14(b)
hereof. Chartwell agrees to notify Trenwick promptly if it is no longer prepared
to accept the Chartwell Superior Proposal referred to in its notification under
Section 4.2(b); or
(iii) if Chartwell fails to obtain the required approval of its stockholders at
the Chartwell Stockholders Meeting and Chartwell shall have paid Trenwick any
Termination Fee required to be paid by Chartwell pursuant to Section 5.14(b)
hereof;
(d) By the Board of Directors of Trenwick:
(i) if Chartwell (x) breaches or fails in any material respect to perform or
comply with any of its material covenants and agreements contained herein or (y)
breaches its representations or warranties in any material respect and such
breach would have or would be reasonably likely to have a Material Adverse
Effect on Chartwell and its subsidiaries, in each case, such that the condition
set forth in Section 6.2(a) or 6.2(b) would not be satisfied; provided, however,
that if such breach is curable by Chartwell through the exercise of Chartwell's
best efforts and for so long as Chartwell shall be so using its best efforts to
cure such breach, Trenwick may not terminate this agreement pursuant to this
Section 7.1(d)(i); or
(ii) if the Board of Directors of Chartwell shall have withdrawn or modified or
changed its approval or recommendation of this Agreement or the Merger in a
manner adverse to Trenwick or shall have approved or recommended a Chartwell
Takeover Proposal, (including, without limitation, a Chartwell Superior
Proposal) or Chartwell shall have entered into an agreement in principle (or
similar agreement) or definitive agreement providing for a Chartwell Takeover
Proposal with a person or entity other than Trenwick or any of its subsidiaries
(or the Board of Directors of Chartwell resolves to do any of the foregoing); or
(iii) if the stockholders of Chartwell do not approve the Merger at the
Chartwell Stockholders Meeting.
SECTION 7.2. Effect of Termination.
(a) In the event of termination of this Agreement by either Chartwell or
Trenwick as provided in Section 7.1, written notice thereof shall promptly be
given to the other party, and this Agreement shall forthwith become void and
there shall be no liability or obligation on the part of any party hereto (or of
any of its directors, officers, employees, agents, legal and financial advisors
or other representatives) other than the liabilities and obligations provided
for in Sections 3.1(s) and 3.2(p), the last sentence of Section 5.3, Section
5.14, this Section 7.2 and Article VIII. Nothing contained in this section shall
relieve any party from any liability resulting from any willful and material
breach of any of its representations, warranties, covenants or agreements set
forth in this Agreement.
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SECTION 7.3. Amendment. Subject to the applicable provisions of the DGCL, this
Agreement may be amended, modified and supplemented in any and all respects
whether before or after the Trenwick Stockholder Approval or the Chartwell
Stockholder Approval only by written agreement signed by the parties hereto,
pursuant to action taken by respective Boards of Directors with respect to any
of the terms contained herein; provided, however, that after any such
stockholder approval, there shall not be any amendment that by law requires
further approval by the stockholders of Trenwick or Chartwell without the
further approval of such stockholders.
SECTION 7.4. Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) subject to
Section 7.3, waive compliance by the other party with any of the agreements or
conditions of the other party contained in this Agreement. Any agreement on the
part of a party to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
SECTION 7.5. Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.3 or an extension or waiver pursuant to Section
7.4 shall, in order to be effective, require in the case of Trenwick or
Chartwell, action by its Board of Directors or, with respect to any amendment to
this Agreement, the duly authorized designee of its Board of Directors.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive the
Effective Time. This Section 8.1 shall not limit any covenant or agreement of
the parties which by its terms contemplates performance after the Effective Time
including but not limited to Sections 5.5 and 5.6.
SECTION 8.2. Definitions. For purposes of this Agreement:
(a) an "affiliate" of or a person "affiliated" with, a specified person, means a
person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the person
specified;
(b) "control" (including "controlling," "controlled by" and "under common
control with") means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a person, whether
through the ownership of voting securities, by contract or otherwise.
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(c) "person" means any individual, corporation, estate, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or an agency or political subdivision
thereof or other entity;
(d) a "subsidiary" means with respect to any person, (i) any corporation at
least a majority of the outstanding voting stock (or equity interest if no
voting interest exists) of which is owned, directly or indirectly, by such
person or by one or more of its subsidiaries, or by such person and one or more
of its subsidiaries, (ii) any general partnership, joint venture or similar
entity, at least a majority of whose outstanding partnership or similar
interests shall at the time be owned by such person, or by one or more of its
subsidiaries, or by such person and one or more of its subsidiaries, (iii) any
limited partnership of which such person or any of its subsidiaries is a general
partner and (iv) any statutory business trust formed under the laws of the State
of Delaware all of the beneficial interests (represented by common securities)
of which shall be owned by such person. For the purposes of this definition,
"voting stock" means shares, interests, participations or other equivalents in
the equity interest (however designated) in such person having ordinary voting
power for the election of a majority of the directors (or the equivalent) of
such person, other than shares, interests, participations or other equivalents
having such power only by reason of the occurrence of a contingency; and
(e) "knowledge" of any person which is not an individual means the knowledge of
such person's executive officers after reasonable inquiry.
(f) "Environmental Law" means the Comprehensive Environmental Response,
Compensation, and Liability Act, the Water Pollution Control Act, the Safe
Drinking Water Act, the Clean Water Act, the Clean Air Act, the Resource
Conservation and Recovery Act, the Hazardous Materials Transportation Act, the
Solid Waste Disposal Act, the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and analogous state acts, and all
other statutes, rules and regulations relating to pollution or protection of the
environment, each as amended and implemented as of the date of this Agreement.
(g) "Hazardous Material" means (i) hazardous materials, hazardous substances,
extremely hazardous substances or hazardous wastes, as those terms are defined
in applicable Environmental Laws; (ii) petroleum, including, without limitation,
crude oil or any fraction thereof which is liquid at standard conditions of
temperature and pressure (60 degrees Fahrenheit and 14.7 pounds per square inch
absolute); (iii) asbestos in any form or condition; and (iv) any other material,
substance or waste to which liability or standards of conduct may be imposed
under any applicable Environmental Law.
(h) "Material Adverse Change" or "Material Adverse Effect" means, when used in
connection with Trenwick or Chartwell, any change, effect, event, occurrence or
state of facts that is or will be materially adverse to the business, results of
operations or financial condition of such party and its subsidiaries taken as a
whole other than any change, effect, event, occurrence or state of facts
relating to (i) the United States or global economy or securities markets in
general, (ii) this Agreement or the transactions contemplated hereby (including
with respect to Chartwell, the items set forth in Section 8.2(h) of the
Chartwell Disclosure Schedule
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and, with respect to Trenwick, the items set forth in Section 8.2(h) of the
Trenwick Disclosure Schedule), or the announcement thereof, (iii) any segment of
the property and casualty insurance or reinsurance industry in which such person
or any of its subsidiaries participates in general, and not specifically
relating to Trenwick or Chartwell or their respective subsidiaries, (iv) any
decrease in the value of portfolio investments resulting from an increase in
prevailing market interest rates or (v) any losses under insurance, reinsurance
or retrocessional agreements (other than where a subsidiary of Chartwell or
Trenwick is the cedent) in respect of any event that is designated to be a
"catastrophe" by the Property Claims Services Division of the American Insurance
Services Group, Inc. after the date hereof.
SECTION 8.3. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, sent by facsimile (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Trenwick, to
Alan L. Hunte
Vice President and Chief Financial Officer
Trenwick Group Inc.
One Canterbury Green
Stamford, CT 06901
Fax: (203) 353-5557
with a copy to:
Baker & McKenzie
805 Third Avenue
New York, NY 10022
Attention: James R. Cameron
Fax: (212) 891-3835
(b) if to Chartwell, to
President
Chartwell Re Corporation
Four Stamford Plaza
107 Elm Street
Stamford CT 06902
Fax: (203) 705-2710
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with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019
Attention: Robert S. Rachofsky
Fax: (212) 424-8500
SECTION 8.4. Interpretation. When a reference is made in this Agreement to an
Article, Section, Exhibit or Schedule, such reference shall be to an Article or
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." The phrase "made available" in this Agreement
shall mean that the information referred to has been made available if requested
by the party to whom such information is to be made available. The words
"hereof", "herein" and "hereunder" and words or similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. All terms defined in this Agreement shall have the
defined meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein. The definitions
contained in this Agreement are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such term. Any agreement, instrument or statute defined or referred
to herein or in any agreement or instrument that is referred to herein means
such agreement, instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by wavier or
consent and (in the case of statutes) by succession of comparable successor
statutes. References to a person are also to its permitted successors and
assigns.
SECTION 8.5. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other party.
SECTION 8.6. Entire Agreement; No Other Representations; No Third-Party
Beneficiaries. This Agreement (including any exhibits and schedules hereto),
the Stock Option Agreement, and the Confidentiality Agreements constitute the
entire agreement, and supersede all prior agreements, understandings,
representations and warranties, both written and oral, among the parties with
respect to the subject matter of this Agreement. Trenwick acknowledges that
neither Chartwell nor any affiliate or officer, director, employee,
representative or advisor of any of them makes or has made any representation or
warranty, express or implied, to Trenwick except as specifically made in this
Agreement or in any certificate or other document delivered pursuant hereto.
This Agreement is not intended to confer upon any person other than the parties
hereto, any rights or remedies except as set forth in Section 5.6(c).
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SECTION 8.7. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware, without regard to
conflicts of laws principles thereof.
SECTION 8.8. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by either of the parties hereto without
the prior written consent of the other party. Any assignment in violation of the
preceding sentence shall be void. Subject to the preceding two sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 8.9. Enforcement and Consent to Jurisdiction. The parties agree that
irreparable damage would occur and that the parties would not have any adequate
remedy at law in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement in any court of the United
States located in the State of Delaware or in Delaware state court (any such
federal or state court, a "Delaware Court"), in addition to any other remedy to
which they are entitled at law or in equity. In addition, each of the parties
hereto (a) consents to submit itself to the personal jurisdiction of any
Delaware Court in the event any dispute arises out of this Agreement or any of
the transactions contemplated by this Agreement and (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction or venue by motion or other
request for leave from any such Delaware Court, and (c) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than any Delaware Court.
SECTION 8.10. Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void, unenforceable or against its regulatory or public policy,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated. Upon any determination that any term, provision,
covenant or restriction is invalid, void, unenforceable or against its
regulatory or public policy, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible to the fullest extent permitted by applicable law in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their respective officers thereunto duly authorized, all as of the date first
written above.
TRENWICK GROUP INC.
By: /s/ JAMES F. BILLETT, JR.
------------------------------------
Name: James F. Billett, Jr.
Title: Chairman, President and
Chief Executive Officer
CHARTWELL RE CORPORATION
By: /s/ RICHARD E. COLE
------------------------------------
Name: Richard E. Cole
Title: Chairman and Chief
Executive Officer
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APPENDIX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of June 21, 1999 (the "Agreement") by and
between Trenwick Group Inc., a Delaware corporation ("Trenwick"), and Chartwell
Re Corporation, a Delaware corporation ("Chartwell" or the "Issuer").
WHEREAS, concurrently with the execution and delivery of this Agreement,
Trenwick and Chartwell are entering into an Agreement and Plan of Merger, dated
as of the date hereof (the "Merger Agreement"), which provides, among other
things, upon the terms and subject to the conditions thereof, for the merger of
Chartwell with and into Trenwick, with Trenwick as the surviving corporation
(the "Merger"); and
WHEREAS, as a condition to Trenwick's willingness to enter into the Merger
Agreement, Trenwick has requested that Chartwell agree, and Chartwell has so
agreed, to grant to Trenwick an option to purchase up to 1,918,729 shares of
common stock, par value $.01 per share, of Chartwell ("Chartwell Common Stock")
in accordance with the terms and subject to the conditions set forth herein.
NOW, THEREFORE, to induce Trenwick to enter into the Merger Agreement, and in
consideration of the foregoing and the mutual representations, warranties,
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth herein,
Chartwell hereby grants to Trenwick an irrevocable option (the "Chartwell
Option") to purchase up to 1,918,729 (as adjusted as set forth herein) shares
(the "Option Shares") of Chartwell Common Stock (such number of Option Shares
representing 19.9% of the number of shares of Chartwell Common Stock issued and
outstanding on the date hereof) in the manner set forth below at a price (the
"Exercise Price") of $23.82 per Option Share (which price per share is equal to
the product of the Conversion Number (as defined in the Merger Agreement) and
the closing price per share of Trenwick common stock, par value $.01 per share,
on the Nasdaq Stock Market National Market on the date hereof), payable in cash
in accordance with Section 4 hereof. Notwithstanding the foregoing, in no event
shall the number of Option Shares for which the Chartwell Option is exercisable
exceed 19.9% of the number of issued and outstanding shares of Chartwell Common
Stock. Capitalized terms used herein but not defined herein shall have the
meanings set forth in the Merger Agreement.
2. Exercise of Option. The Chartwell Option may be exercised by Trenwick, in
whole or in part, at any time or from time to time after the Merger Agreement
becomes terminable by Trenwick under circumstances which would or could entitle
Trenwick to receive the Termination Fee pursuant to Section 5.14(b) of the
Merger Agreement (a "Trigger Event") (regardless of whether the Merger Agreement
is actually terminated or whether there occurs a closing involving Chartwell);
provided, that a Trigger Event shall not occur in the circumstances contemplated
by Section 5.14(b)(z) of the Merger Agreement unless and until a Termination Fee
shall be payable pursuant to Section 5.14(b)(z) of the Merger Agreement. In the
event Trenwick wishes to exercise the Chartwell Option, Trenwick shall deliver
to Chartwell a written notice (an
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"Exercise Notice") specifying the total number of Option Shares it wishes to
purchase. Each closing of a purchase of Option Shares (an "Option Closing")
shall occur, but subject to the satisfaction or waiver of the conditions set
forth in Section 3 hereof, at a place, on a date and at a time designated by
Trenwick in an Exercise Notice delivered at least two business days prior to the
date of the Option Closing. The Chartwell Option shall terminate upon the
earlier of: (i) the Effective Time; (ii) the termination of the Merger Agreement
other than under circumstances which also constitute a Trigger Event; or (iii)
the 180th day following a Trigger Event (or if, at the expiration of such 180
day period the Chartwell Option cannot be exercised by reason of any applicable
judgment, decree, order, law or regulation, 10 business days after such
impediment to exercise shall have been removed or shall have become final and
not subject to appeal, but in no event under this clause (iii) later than the
365th day following such Trigger Event). Notwithstanding the foregoing, the
Chartwell Option may not be exercised if Trenwick is in material breach of any
of its representations or warranties, or in material breach of any of its
covenants or agreements, contained in this Agreement or in the Merger Agreement.
Upon the giving by Trenwick to Chartwell of the Exercise Notice and the tender
of the applicable aggregate Exercise Price, but subject to the satisfaction or
waiver of the conditions set forth in Section 3 hereof, Trenwick shall be deemed
to be the holder of record of the Option Shares issuable upon such exercise,
notwithstanding that the stock transfer books of Chartwell shall then be closed
or that certificates representing such Option Shares shall not then be actually
delivered to Trenwick.
3. Conditions to Closing. The obligation of Chartwell to issue the Option
Shares to Trenwick hereunder is subject to the conditions, which (other than the
conditions described in clauses (i), (iii) and (iv) below) may be waived by
Chartwell in its sole discretion, that (i) all waiting periods, if any, under
the HSR Act, applicable to the issuance of the Option Shares hereunder shall
have expired or have been terminated; (ii) the Option Shares shall have been
approved for listing on the NYSE upon official notice of issuance; (iii) all
consents, approvals, orders or authorizations of, or registrations, declarations
or filings with, any federal, state or local administrative agency or commission
or other federal, state or local Governmental Entity, if any, required in
connection with the issuance of the Option Shares hereunder shall have been
obtained or made, as the case may be including, without limitation, by Trenwick;
and (iv) no preliminary or permanent injunction or other order or decree by any
court of competent jurisdiction, law or regulation prohibiting or otherwise
restraining such issuance shall be in effect.
4. Payment and Delivery of Certificates.
(a) At any Option Closing, Trenwick shall pay to Chartwell the aggregate
purchase price (equal to the Exercise Price multiplied by the number of Option
Shares to be purchased at such Option Closing) for the shares of Chartwell
Common Stock purchased pursuant to the exercise of the Chartwell Option in
immediately available funds by wire transfer to a bank account designated in
writing by Chartwell; provided, however, that failure or refusal of Chartwell to
designate such account shall not preclude Trenwick from exercising the Chartwell
Option.
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(b) At any Option Closing, simultaneously with the delivery of immediately
available funds as provided in Section 4(a), Chartwell will deliver to Trenwick
a certificate or certificates representing the number of Option Shares to be
purchased by Trenwick at such Option Closing, which Option Shares will be free
and clear of all liens, claims, charges and encumbrances of any kind whatsoever
and if the option is exercised in part only, Chartwell shall deliver a new
option evidencing the rights of Trenwick thereof to purchase the balance of the
shares purchasable hereunder and (ii) Trenwick will deliver to Chartwell a copy
of this Agreement and a letter agreeing that Trenwick will not offer to sell or
otherwise dispose of such shares in violation of applicable law or the
provisions of this Agreement. If at the time of issuance of Option Shares
pursuant to an exercise of the option hereunder, Chartwell shall not have
redeemed the Chartwell Rights, or shall have issued any similar securities, then
each Option Share issued pursuant to such exercise will also represent such a
corresponding Chartwell Right or new rights with terms substantially the same as
and at least as favorable to Trenwick as are provided in the Chartwell Rights
Agreement or similar agreement then in effect. Chartwell shall pay all expenses,
and any and all United States federal, state and local taxes and other charges
that may be payable in connection with the preparation, issue and delivery of
stock certificates under this Section 4 in the name of Trenwick or its designee.
5. Representations and Warranties of Chartwell. Chartwell hereby represents
and warrants to Trenwick that (a) Chartwell is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the corporate power and authority to enter into this Agreement, (b) the
execution and delivery of this Agreement by Chartwell and the consummation by
Chartwell of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of Chartwell and no other corporate
proceedings on the part of Chartwell are necessary to authorize this Agreement
or any of the transactions contemplated hereby, (c) this Agreement has been duly
executed and delivered by Chartwell, constitutes a valid and binding obligation
of Chartwell and, assuming this Agreement constitutes a valid and binding
obligation of Trenwick, is enforceable against Chartwell in accordance with its
terms, (d) Chartwell has taken all necessary corporate action to authorize and
reserve for issuance and to permit it to issue, upon exercise of the Chartwell
Option, and at all times from the date hereof through the expiration of the
Chartwell Option will have reserved, 1,918,729 authorized and unissued Option
Shares, such amount being subject to adjustment as provided in Section 9, all of
which, upon their issuance and delivery in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable, (e) upon
delivery of the Option Shares to Trenwick upon the exercise of the Chartwell
Option, Trenwick will acquire the Option Shares free and clear of all claims,
liens, charges, encumbrances and security interests of any nature whatsoever,
and (f) none of Chartwell, any of its affiliates or anyone acting on its or
their behalf has issued, sold or offered any security of Chartwell to any person
under circumstances that would cause the issuance and sale of the Option Shares,
as contemplated by this Agreement, to be subject to the registration
requirements of the Securities Act as in effect on the date hereof and, assuming
the representations of Trenwick contained in Section 6(d) are true and correct
and based on Trenwick's commitment in its letter referred to in Section 4
hereof, the issuance, sale and delivery of the Option Shares hereunder would be
exempt from the registration and prospectus delivery requirements of the
Securities Act, as in effect on the date hereof (and Chartwell shall not take
any action which would cause the
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issuance, sale and delivery of the Option Shares hereunder not to be exempt from
such requirements).
6. Representations and Warranties of Trenwick. Trenwick represents and
warrants to Chartwell that (a) Trenwick is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power and authority to enter into this Agreement and to carry out
its obligations hereunder, (b) the execution and delivery of this Agreement by
Trenwick and the consummation by Trenwick of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Trenwick and no other corporate proceedings on the part of Trenwick are
necessary to authorize this Agreement or any of the transactions contemplated
hereby, (c) this Agreement has been duly executed and delivered by Trenwick and
constitutes a valid and binding obligation of Trenwick, and, assuming this
Agreement constitutes a valid and binding obligation of Chartwell, is
enforceable against Trenwick in accordance with its terms, and (d) any Option
Shares acquired upon exercise of the Chartwell Option will be acquired for
Trenwick's own account, for investment purposes only and will not be, and the
Chartwell Option is not being, acquired by Trenwick with a view to the public
distribution thereof in violation of any applicable provision of the Securities
Act.
7. Restrictions on Transfer.
(a) Restrictions on Transfer. Prior to the first anniversary of the date on
which Trenwick purchases any Option Shares hereunder (the "Expiration Date"),
Trenwick shall not, directly or indirectly, by operation of law or otherwise,
sell, assign, pledge, or otherwise dispose of or transfer any Option Shares
acquired by Trenwick pursuant to this Agreement ("Restricted Shares")
beneficially owned by it, other than in accordance with Section 7(b) or Section
8. Subsequent to the Expiration Date, Trenwick shall not, directly or
indirectly, by operation of law or otherwise, sell, assign, pledge or otherwise
dispose of or transfer any Restricted Shares beneficially owned by it to any
purchaser, assignee, pledgee or other transferee who would, immediately after
such sale, assignment, pledge, disposition or transfer, beneficially own more
than 4.9% of the then outstanding voting power of the issuer of the Restricted
Shares, except in accordance with Section 7(b) or Section 8 and other than in
market transactions at prevailing prices.
(b) Permitted Sales. Following the termination of the Merger Agreement,
Trenwick shall be permitted to sell or transfer any Restricted Shares
beneficially owned by it if such sale is made pursuant to a tender or exchange
offer or merger that has been approved or recommended, or otherwise determined
to be fair to and in the best interests of the shareholders of Chartwell, by a
majority of the members of the Board of Directors of Chartwell (which majority
shall include a majority of directors who were directors prior to the
announcement of such tender or exchange offer or merger).
8. Registration Rights. Following the termination of the Merger Agreement, but
not later than the second anniversary of the last date that Trenwick acquired
Option Shares under this Agreement, Trenwick (a "Designated Holder") may by
written notice (the "Registration Notice") to Chartwell (the "Registrant")
request the Registrant to register under the
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Securities Act all or any part of the Restricted Shares beneficially owned by
the Designated Holder (the "Registrable Securities") pursuant to a bona fide
firm commitment underwritten public offering in which the Designated Holder and
the underwriters shall effect as wide a distribution of such Registrable
Securities as is reasonably practicable and shall use their commercially
reasonable efforts to prevent any person (including any Group (as used in Rule
13d-5 under the Exchange Act)) and its affiliates from purchasing through such
offering Restricted Shares representing more than 1% of the outstanding shares
of common stock of the Registrant on a fully diluted basis (a "Permitted
Offering"). The Registration Notice shall include a certificate executed by the
Designated Holder and its proposed managing underwriter, which underwriter shall
be an investment banking firm of nationally recognized standing (the "Manager"),
stating that (i) they have a good faith intention to commence promptly a
Permitted Offering and (ii) the Manager in good faith believes that, based on
the then prevailing market conditions, it will be able to sell the Registrable
Securities at a per share price equal to at least 80% of the then Fair Market
Value (as defined below) of such shares. The Registrant (and/or any person
designated by the Registrant) shall thereupon have the option exercisable by
written notice delivered to the Designated Holder within 10 business days after
the receipt of the Registration Notice, irrevocably to agree to purchase all or
any part of the Registrable Securities proposed to be so sold for cash at a
price (the "Option Price") equal to the product of (i) the number of Registrable
Securities to be so purchased by the Registrant and (ii) the then Fair Market
Value of such shares. Any such purchase of Registrable Securities by the
Registrant (or its designee) hereunder shall take place at a closing to be held
at the principal executive offices of the Registrant or at the offices of its
counsel at any reasonable date and time designated by the Registrant and/or such
designee in such notice within 20 business days after delivery of such notice.
Any payment for the shares to be purchased shall be made by delivery at the time
of such closing of the Option Price in immediately available funds. As used
herein, the "Fair Market Value" of any share shall be the average of the daily
closing sales price for such share on the NYSE during the 10 NYSE trading days
prior to the fifth NYSE trading day preceding the date such Fair Market Value is
to be determined.
If the Registrant does not elect to exercise its option pursuant to this Section
8 with respect to all Registrable Securities, it shall use its commercially
reasonable efforts to effect, as promptly as practicable, the registration under
the Securities Act of the unpurchased Registrable Securities proposed to be so
sold; provided, however, that (i) Trenwick shall not be entitled to more than an
aggregate of two effective registration statements hereunder and (ii) the
Registrant will not be required to file any such registration statement during
any period of time (not to exceed 90 days after such request in the case of
clauses (A), (B) or (C) below) when (A) the Registrant is in possession of
material non -- public information which it reasonably believes would be
detrimental to be disclosed at such time and, in the opinion of counsel to the
Registrant, such information would have to be disclosed if a registration
statement were filed at that time; (B) the Registrant is required under the
Securities Act to include audited financial statements for any period in such
registration statement and such financial statements are not yet available for
inclusion in such registration statement; or (C) the Registrant determines, in
its reasonable judgment, that such registration would interfere with any
financing, acquisition or other material transaction involving the Registrant or
any of its affiliates. The Registrant shall use its reasonable best efforts to
cause any Registrable Securities registered pursuant to this Section 8 to be
qualified for sale under the securities or blue sky laws of such jurisdictions
as the
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Designated Holder may reasonably request and shall continue such registration or
qualification in effect in such jurisdiction; provided, however, that the
Registrant shall not be required to qualify to do business in, or consent to
general service of process in, any jurisdiction by reason of this provision.
The registration rights set forth in this Section 8 are subject to the condition
that the Designated Holder shall provide the Registrant with such information
with respect to such holder's Registrable Securities, the plans for the
distribution thereof, and such other information with respect to such holder as,
in the reasonable judgment of counsel for the Registrant, is necessary to enable
the Registrant to include in such registration statement all material facts
required to be disclosed with respect to a registration thereunder.
A registration effected under this Section 8 shall be effected at the
Registrant's expense, except for underwriting discounts and commissions and the
fees and the expenses of counsel to the Designated Holder, and the Registrant
shall provide to the underwriters such documentation (including certificates,
opinions of counsel and "comfort" letters from auditors) as are customary in
connection with underwritten public offerings as such underwriters may
reasonably require. In connection with any such registration, the parties agree
(i) to indemnify each other and the underwriters in the customary manner
(provided that the Designated Holder shall only be required to indemnify other
parties to such underwriting agreement for information relating to such
Designated Holder and supplied by it for inclusion in such registration
statement), (ii) to enter into an underwriting agreement in form and substance
customary for transactions of such type with the Manager and the other
underwriters participating in such offering and (iii) to take all further
actions which shall be reasonably necessary to effect such registration and sale
(including, if the Manager deems it necessary, participating in road show
presentations).
The Registrant shall be entitled to include (at its expense) additional shares
of its common stock in a registration effected pursuant to this Section 8 only
if and to the extent the Manager determines that such inclusion will not
adversely affect the prospects for success of such offering.
9. Adjustment upon Changes in Capitalization. Without limitation to any
restriction on Chartwell contained in this Agreement or in the Merger Agreement,
in the event of any change in Chartwell Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, subdivisions, conversions,
combinations, exchange of shares or the like, the type and number of shares or
securities subject to the Chartwell Option, and the Exercise Price per Option
Share provided in Section 1, shall be adjusted appropriately to restore to
Trenwick its rights hereunder, including the right to purchase from the
Chartwell (or its successors) shares of Chartwell Common Stock representing
19.9% of the outstanding Chartwell Common Stock for the aggregate Exercise Price
calculated as of the date of this Agreement as provided in Section 1.
10. Restrictive Legends. Each certificate representing shares of Chartwell
Common Stock issued to Trenwick at a Closing will have typed or printed thereon
a restrictive legend in substantially the following form:
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION
AGREEMENT, DATED AS OF JUNE 21, 1999, A COPY OF WHICH MAY BE OBTAINED
FROM THE ISSUER UPON REQUEST.
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if such Option Shares have been
registered pursuant to the Securities Act, such Option Shares have been sold in
reliance on and in accordance with Rule 144 under the Securities Act or Trenwick
has delivered to Chartwell a copy of a letter from the staff of the Securities
and Exchange Commission, or an opinion of counsel, in form and substance
satisfactory to Chartwell and its counsel, to the effect that such legend is not
required for purposes of the Securities Act; (ii) the reference to restrictions
pursuant to this Agreement in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the Option Shares evidenced
by certificate(s) containing such reference have been sold or transferred in
compliance with the provisions of this Agreement and under circumstances that do
not require the retention of such reference; and (iii) the legend shall be
removed in its entirety if the conditions in the preceding clauses (i) and (ii)
are both satisfied. In addition, such certificate(s) shall bear any other legend
as may be required by law. Certificates representing shares sold in a registered
public offering pursuant to Section 8 shall not be required to bear the legend
set forth in this Section 10.
11. Profit Limitation.
(a) Notwithstanding any other provision of this Agreement or the Merger
Agreement, in no event shall Trenwick's Total Profit (as hereinafter defined)
exceed $9.0 million (such amount, the "Profit Limit") and, if it would otherwise
exceed such amount, Trenwick, at its sole election, shall, within five business
days, either (i) deliver to the Issuer for cancellation Option Shares (valued,
for purposes of this Section 11, at their Fair Market Value on the date of such
delivery), (ii) pay cash to the Issuer or refund in cash any Termination Fee
previously paid to Trenwick or reduce or waive the amount of any Termination Fee
payable to Trenwick pursuant to Section 5.14(b) of the Merger Agreement, or
(iii) undertake any combination thereof, so that Trenwick's Total Profit shall
not exceed the Profit Limit after taking into account the foregoing actions. As
used herein, "Total Profit" means the aggregate amount (before taxes) of (i) the
amount of Termination Fee received by Trenwick pursuant to Section 5.14(b) of
the Merger Agreement and any fee received by Trenwick pursuant to Section
5.14(c) of the Merger Agreement and (ii) (x) the net cash amounts received by
Trenwick pursuant to the sale of Option Shares (or any other securities into
which such Option Shares are converted or exchanged) to any unaffiliated party,
less (y) Trenwick's purchase price for such Option Shares.
(b) Notwithstanding any other provision of this Agreement or the Merger
Agreement, the Chartwell Option may not be exercised for a number of Option
Shares that
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would, as of the date of the Exercise Notice, result in a Notional Total Profit
(as hereinafter defined) of more than the Profit Limit and, if exercise of the
Chartwell Option otherwise would exceed the Profit Limit, Trenwick, at its
discretion, may increase the Exercise Price for that number of Option Shares set
forth in the Exercise Notice so that the Notional Total Profit shall not exceed
the Profit Limit; provided, that nothing in this sentence shall restrict any
exercise of the Chartwell Option permitted hereby on any subsequent date at the
Exercise Price set forth in Section 1 hereof. As used herein, the term "Notional
Total Profit" with respect to any number of Option Shares as to which Trenwick
may propose to exercise the Chartwell Option shall be the Total Profit
determined as of the date of the Exercise Notice assuming that the Chartwell
Option were exercised on such date for such number of Option Shares and assuming
that such Option Shares, together with all other shares of Chartwell Common
Stock held by Trenwick and its subsidiaries as of such date, were sold for cash
at the closing market price for the Chartwell Common Stock on the NYSE Composite
Tape at the close of business on the preceding trading day (less customary
brokerage commissions).
12. Binding Effect; No Assignment; No Third Party Beneficiaries. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Neither this Agreement
nor the rights or the obligations of either party hereto are assignable, except
by operation of law, or with the written consent of the other party. Nothing
contained in this Agreement, express or implied, is intended to confer upon any
person other than the parties hereto and their respective permitted assigns any
rights or remedies of any nature whatsoever by reason of this Agreement. Any
Restricted Shares sold by a party in compliance with the provisions of Section 8
shall, upon consummation of such sale, be free of the restrictions imposed with
respect to such shares by this Agreement, unless and until such party shall
repurchase or otherwise become the beneficial owner of such shares, and any
transferee of such shares shall not be entitled to the registration rights of
such party.
13. Specific Performance. The parties recognize and agree that if for any
reason any of the provisions of this Agreement are not performed in accordance
with their specific terms or are otherwise breached, immediate and irreparable
harm or injury would be caused for which money damages would not be an adequate
remedy. Accordingly, each party agrees that, in addition to other remedies, the
other party shall be entitled to an injunction restraining any violation or
threatened violation of the provisions of this Agreement. In the event that any
action should be brought in equity to enforce the provisions of the Agreement,
neither party will allege, and each party hereby waives the defense, that there
is adequate remedy at law.
14. Entire Agreement. This Agreement, the Merger Agreement (including any
exhibits and schedules thereto) and the Confidentiality Agreement constitute the
entire agreement, and supersede all other prior agreements and understandings,
both written and oral, between the parties with respect to the subject matter of
this Agreement.
15. Further Assurances. Each party will execute and deliver all such further
documents and instruments and take all such further action as may be necessary
in order to consummate the transactions contemplated hereby.
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16. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect. In
the event any court or other competent authority holds any provisions of this
Agreement to be null, void or unenforceable, the parties hereto shall negotiate
in good faith the execution and delivery of an amendment to this Agreement in
order, as nearly as possible, to effectuate, to the extent permitted by law, the
intent of the parties hereto with respect to such provision and the economic
effects thereof. If for any reason any such court or regulatory agency
determines that Trenwick is not permitted to acquire the full number of shares
of Chartwell Common Stock provided in Section 1 hereof (as the same may be
adjusted), it is the express intention of Chartwell to allow Trenwick to acquire
such lesser number of shares as may be permissible, without any amendment or
modification hereof. Each party agrees that, should any court or other competent
authority hold any provision of this Agreement or part hereof to be null, void
or unenforceable, or order any party to take any action inconsistent herewith,
or not take any action required herein, the other party shall not be entitled to
specific performance of such provision or part hereof or to any other remedy,
including but not limited to money damages, for breach hereof or of any other
provision of this Agreement or part hereof as the result of such holding or
order.
17. Notices. All notices, requests, claims, demands and other communications
under this Agreement shall be in writing and shall be deemed given if (i)
delivered, personally, or (ii) sent by overnight courier service (providing
proof of delivery), or (iii) telecopied (which is confirmed), or (iv) five days
after being mailed by registered or certified mail (return receipt requested) to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
If to Trenwick:
Alan L. Hunte
Vice President and
Chief Financial Officer
Trenwick Group Inc.
One Canterbury Green
Stamford, CT 06901
Fax: (203) 353-5544
with a copy to:
Baker & Mc Kenzie
805 Third Avenue
New York, New York 10022
Attention: James R. Cameron
Fax: (212) 891-3835
If to Chartwell, to:
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President
Chartwell Re Corporation
Four Stamford Plaza
107 Elm Street
Stamford, CT 06902
Fax: (203) 705-2710
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: Robert S. Rachofsky
Fax: (212) 424-8500
18. Governing Law; Choice of Forum. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware without regard
to the conflicts of law principles thereof. Each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any federal court
located in the State of Delaware or any Delaware state court in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement, (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court
and (c) agrees that it will not bring any action relating to this Agreement or
any of the transactions contemplated by this Agreement in any court other than a
federal court sitting in the state of Delaware or a Delaware state court.
19. Interpretation. When a reference is made in this Agreement to a Section,
such reference shall be to a Section of this Agreement unless otherwise
indicated. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." The descriptive headings herein are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
20. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but both of which, taken
together, shall constitute one and the same instrument.
21. Expenses. Except as otherwise expressly provided herein or in the Merger
Agreement, all costs and expenses incurred in connection with the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses.
22. Amendment. This Agreement may not be amended, except by an instrument in
writing signed on behalf of each of the parties.
23. Extension; Waiver. Any agreement on the part of a party to waive any
provision of this Agreement, or to extend the time for performance, will be
valid only if set forth
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in an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise will not constitute a waiver of such rights.
24. Loss or Mutilation. Upon receipt by Chartwell of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Chartwell will execute and deliver to Trenwick a new
Agreement of like tenor and date. Any such new Agreement executed and delivered
will constitute an additional contractual obligation on the part of Chartwell,
whether or not the Agreement so lost, stolen, destroyed, or mutilated shall at
any time be enforceable by anyone.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective duly authorized officers as of the date first above written.
TRENWICK GROUP INC.
By: /s/ JAMES F. BILLETT, JR.
--------------------------------------
Name: James F. Billett, Jr.
Title: Chairman, President and
Chief Executive Officer
CHARTWELL RE CORPORATION
By: /s/ RICHARD E. COLE
--------------------------------------
Name: Richard E. Cole
Title: Chairman and Chief
Executive Officer
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APPENDIX C
June 21, 1999
Board of Directors
Trenwick Group Inc.
One Canterbury Green
Stamford, CT 06901
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to Trenwick Group Inc. (the "Company") of the Exchange Ratio pursuant to
the terms of the Agreement and Plan of Merger, to be dated as of June 21, 1999
(the "Agreement"), between the Company and Chartwell Re Corporation
("Chartwell") pursuant to which Chartwell will be merged (the "Merger") with and
into the Company.
Pursuant to the Agreement, each share of common stock of Chartwell, par
value $.01 per share ("Chartwell Common Stock"), will be converted, subject to
certain exceptions, into the right to receive 0.825 shares (the "Exchange
Ratio") of common stock, $0.10 par value per share of the Company ("Company
Common Stock").
In arriving at our opinion, we have reviewed the draft dated June 17, 1999
of the Agreement and Stock Option Agreement between the Company and Chartwell.
We also have reviewed financial and other information that was publicly
available or furnished to us by the Company and Chartwell including information
provided during discussions with their respective managements. Included in the
information provided during discussions with the respective managements were
certain financial projections of Chartwell for the period beginning January 1,
1999 and ending December 31, 2000 prepared by the management of Chartwell and
certain financial projections of the Company for the period beginning January 1,
1999 and ending December 31, 2010 prepared by the management of the Company and
certain financial projections of Chartwell for the period beginning January 1,
2001 and ending December 31, 2010 prepared by management of the Company based in
part on the financial forecasts prepared by the management of Chartwell. In
addition, we have compared certain financial and securities data of the Company
and Chartwell with various other companies whose securities are traded in public
markets, reviewed the historical stock prices and trading volumes of Company
Common Stock and Chartwell Common Stock, reviewed prices and premiums paid in
certain other business combinations and conducted such other financial studies,
analyses and investigations as we deemed appropriate for purposes of this
opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company and Chartwell or
their respective representatives, or that was otherwise reviewed by us. In
particular, we have relied upon the estimates of the management of the Company
of the operating synergies achievable as a result of the Merger and upon our
discussion of such synergies with the management of Chartwell. With respect to
the financial projections supplied to us, we have relied on representations that
they have been reasonably prepared on the basis reflecting the best currently
available estimates and judgments of the management of the Company and Chartwell
as to the future operating and financial performance of the Company and
Chartwell. We have not assumed any responsibility for making any independent
evaluation of any assets or liabilities or for making any independent
verification of any of the information reviewed by us. We have assumed that the
transaction qualifies as a reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise
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or reaffirm this opinion. We are expressing no opinion herein as to the prices
at which Company Common Stock will actually trade at any time. Our opinion does
not address the relative merits of the Merger and the other business strategies
being considered by the Company's Board of Directors, nor does it address the
Board's decision to proceed with the Merger. Our opinion does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. DLJ has performed investment
banking and other services for the Company in the past and has been compensated
for such services.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Exchange Ratio is fair to the Company from a financial
point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ DAVID M. PLATTER
------------------------------------
David M. Platter
Managing Director
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APPENDIX D
PERSONAL AND CONFIDENTIAL
June 21, 1999
Board of Directors
Chartwell Re Corporation
Four Stamford Plaza
107 Elm Street
Stamford, CT 06902
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders (excluding Trenwick, as defined below, or any of its
subsidiaries) of the outstanding shares of common stock, par value $0.01 per
share (the "Shares"), of Chartwell Re Corporation (the "Company") of the
exchange ratio of 0.825 shares of common stock, par value $0.10 per share, of
Trenwick (the "Trenwick Common Stock") to be received for each Share (the
"Exchange Ratio") pursuant to the Agreement and Plan of Merger, dated as of June
21, 1999, between Trenwick Group Inc. ("Trenwick") and the Company (the
"Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services to
the Company from time to time, including having acted as co-managing underwriter
for the Company's public offering of 3,638,655 Shares in March 1996 and having
acted as its financial advisor in connection with, and having participated in
certain of the negotiations leading to, the Agreement. We also have provided
investment banking services from time to time to Trenwick, and may provide
investment banking services to Trenwick and its affiliates in the future.
Goldman, Sachs & Co. provides a full range of financial advisory and securities
services and, in the course of its normal trading activities may from time to
time effect transactions and hold securities, including derivative securities,
of the Company or Trenwick or their affiliates for its own account and for the
accounts of customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Shareholders and Annual Reports on Form 10-K of the
Company and Trenwick for, respectively, the three and five year periods ended
December 31, 1998; certain interim reports to stockholders and Quarterly Reports
on Form 10-Q of the Company and Trenwick; Statutory Annual Statements filed by
certain insurance subsidiaries of the Company and Trenwick with the Insurance
Departments of the states under the laws of which they are respectively
organized for the five years ended December 31, 1998; certain other financial
information, including Annual Report and Accounts and Syndicate Quarterly
Reports, of the Lloyd's syndicates managed by the Company; certain other
communications from the Company and Trenwick to their respective stockholders;
and certain internal financial analyses and forecasts for the Company and
Trenwick prepared by their respective managements, including certain cost
savings and operating synergies (the "Synergies") projected by the managements
of the Company and Trenwick to result pursuant to the transactions contemplated
by the Agreement. We have also held discussions with the senior management of
the Company and Trenwick regarding the strategic rationale for, and potential
benefits of, the transaction contemplated by the Agreement and the past and
current business operations, financial condition and future prospects of their
respective companies. In addition, we have reviewed the reported price and
trading activity for the Shares and the Trenwick Common Stock, compared certain
financial and stock market information for the Company and Trenwick with similar
information for certain other companies the securities of which are publicly
traded, reviewed
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Chartwell Re Corporation
June 21, 1999
Page 2
the financial terms of certain recent business combinations in the reinsurance
industry specifically and in other industries generally and performed such other
studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us, including the information furnished by the
Company relating to the loss and loss adjustment expense reserves and related
items, and have assumed such accuracy and completeness for purposes of rendering
this opinion. In that regard, we have assumed, with your consent, that the
internal financial forecasts prepared by the managements of the Company and
Trenwick, including the Synergies, have been reasonably prepared on a basis
reflecting the best currently available judgments of their respective
managements. We are not actuaries and our services did not include actuarial
determinations or evaluations by us or an attempt to evaluate actuarial
assumptions, including those used in developing the loss and loss adjustment
expense reserves. In addition, we have not made an independent evaluation or
appraisal of the assets and liabilities (including the loss and loss adjustment
expense reserves) of the Company or Trenwick or any of their respective
subsidiaries and we have not been furnished with any such evaluation or
appraisal. In that regard, we express no opinion as to the adequacy of the loss
and loss adjustment expense reserves of the Company or Trenwick or any of their
respective subsidiaries. Our advisory services and the opinion expressed herein
are provided for the information and assistance of the Board of Directors of the
Company in connection with its consideration of the transaction contemplated by
the Agreement and such opinion does not constitute a recommendation as to how
any holder of the Shares should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement is fair from a financial point of view
to such holders (excluding Trenwick or any of its subsidiaries) of the Shares.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
- ------------------------------------------------
(GOLDMAN, SACHS & CO.)
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APPENDIX E
TRENWICK GROUP INC.
1993 STOCK OPTION PLAN
1. PURPOSE This Plan is intended to strengthen the ability of the Company
and its Subsidiaries to attract and retain Qualified Employees of outstanding
competence by providing them with added incentive to render high levels of
performance and effective service in connection with their employment through
the opportunity for common stock ownership and benefits of common stock
appreciation.
2. DEFINITIONS For the purposes of the Plan, except where the context
otherwise indicates, the following definitions shall apply:
"Board" means the Board of Directors of the Company.
A "Change in Control" shall be deemed to have occurred at such time as:
a. Any person within the meaning of Section 16(d) of the Securities
Exchange Act of 1934, other than the Company, a subsidiary or any employee
benefit plan(s) sponsored by the Company or any subsidiary, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934), directly or indirectly, of fifty percent (50%) or
more of the Company's issued and outstanding shares of common stock, or
shares of capital stock at any time issued by the Company representing
fifty percent (50%) or more of the voting rights of all shares of stock
issued by the Company;
b. Individuals who constitute the Board of Directors on December 15,
1993 cease for any reason to constitute a majority at least thereof,
provided that any person becoming a director subsequent to December 15,
1993, whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least three quarters of the
directors comprising the Board on December 15, 1993 (either by a specific
vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without objection to such
nomination) shall be considered as though such person were a member of the
Board on December 15, 1993;
c. Trenwick consolidates with, or merges with and into, any other
person (other than a subsidiary of Trenwick), and Trenwick is not the
continuing or surviving corporation of such consolidation or merger;
d. Any person (other than a subsidiary of Trenwick) consolidates
with, or merges with and into, Trenwick, and Trenwick is the continuing or
surviving corporation of such consolidation or merger, and in connection
with such consolidation or merger, all or part of the outstanding shares of
common stock are changed into or exchanged for stock or other securities of
any other person or cash or any other property;
e. Trenwick sells or otherwise transfers (or one or more of its
subsidiaries sells or otherwise transfers), in one transaction or in a
series of related transactions, assets or earning power aggregating more
than fifty percent (50%) of the assets or earning power of Trenwick and its
subsidiaries (taken as a whole) to any person or persons (other than
Trenwick or subsidiaries of Trenwick);
f. Any person commences a tender offer (as defined in Rule 14d-2 as
promulgated by the Securities and Exchange Commission) for fifty percent
(50%) or more of Trenwick's outstanding shares of common stock.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
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"Committee" means the Compensation Committee or any other committee
designated by the Board to have administrative responsibility with respect to
the Plan.
"Common stock" means the Company's common stock, par value $0.10.
"Company" means Trenwick Group Inc.
"Date of Exercise" of an Option or a Stock Appreciation Right ("SAR") means
the date upon which written notice thereof is received by the Company's
Corporate Secretary.
"Date of Grant" means the date Restricted Shares, an Option or any related
SARs become effective under the terms of the governing Restricted Stock
Agreement or Option Agreement.
"Exercise Notice" means a written notice from an Optionee to the Company,
made on a form and in a manner as the Committee may from time to time determine,
pursuant to which the Optionee irrevocably elects to exercise all or any portion
of an Option and irrevocably directs the Company to deliver the common stock
certificate to be issued to such Optionee upon such Option exercise directly to
a "broker" or "dealer" (within the meaning of Section 3 (a) of the Securities
Exchange Act of 1934, as amended from time to time). An Exercise Notice must be
accompanied by or contain irrevocable instructions to the broker or dealer (i)
to promptly sell a sufficient number of shares of such common stock, or to loan
the Optionee a sufficient amount of money, to pay the exercise price for the
Options, and (ii) to promptly remit such sum to the Company upon the broker's or
dealer's receipt of the certificate.
"Fair Market Value" means the fair market value of common stock determined
by the Committee.
"Incentive Stock Option" means an Option granted as an incentive stock
option as defined in Section 422A of the Code.
"Non-Employee Director" means "non-employee director" as defined in Rule
16b-3 of the Securities and Exchange Commission, as amended from time to time.
"Non-Qualified Stock Option" means an Option that does not qualify as an
Incentive Stock Option or is so stated to be a Non-Qualified Stock Option upon
issuance. The terms of the Option Agreement for a Non-Qualified Stock Option
shall expressly state that the Option is a Non-Qualified Stock Option.
"Option" means the rights granted to a Qualified Employee to purchase
common stock pursuant to the terms and conditions of an Option Agreement,
including both Incentive Stock Options and Non-Qualified Stock Options.
"Option Agreement" means a written agreement (and any amendment or
supplement thereto) between the Company and a Qualified Employee designating the
terms and conditions of an Option, including any related SAR.
"Optionee" means a Qualified Employee to whom an Option and any related SAR
are granted.
"Plan" means Trenwick Group Inc. 1993 Stock Option Plan.
"Qualified Employee" means any person employed on a full-time basis by the
Company or a Subsidiary whose performance, in the judgement of the Committee,
could have or did have a significant effect on either (or both) the current or
long-term success of the Company or a Subsidiary (or both).
"Restricted Shares" means common stock which shall be non-transferable and
subject to forfeiture to the Company until vested.
"Restricted Stock Agreement" means a written agreement (and any amendment
or supplement thereto) between the Company and a Qualified Employee evidencing
the number of shares of common stock granted.
"Stock Appreciation Right" or "SAR" means a right (which shall not exist
separately from a related unexercised Option) granted to the terms and
conditions of an Option Agreement to surrender an unexercised Option, or some
portion of an unexercised Option, and to receive from the Company either
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shares of common stock (valued at Fair Market Value on the Date of Exercise of
the SAR), cash, or a combination thereof, equal in amount to the excess of the
aggregate Fair Market Value (on the Date of Exercise of the SAR) of the shares
as to which the Option is surrendered, over the aggregate Option price of such
shares, subject to any limitations in Section 7. Notwithstanding any other
provision of this Plan or of an Option Agreement to the contrary, in no event
shall the amount payable to the Optionee upon exercise of a SAR related to an
Incentive Stock Option exceed one hundred (100%) percent of the difference
between the exercise price of the related Incentive Stock Option and the Fair
Market Value of the common stock at the Date of Exercise of the SAR.
"Subsidiary" means any entity of which, at the time such Subsidiary status
is to be determined, at least fifty (50%) percent of the combined voting power
of such entity is directly or indirectly owned or controlled by the Company.
3. ADMINISTRATION OF THE PLAN The Plan shall be administered by the
Committee (whose members shall be appointed by the Board) consisting solely of
three or more members of the Board who are Non-Employee Directors. A majority of
the Committee shall constitute a quorum, and all acts of the Committee must be
approved by a majority (at least two) of its members.
Subject to the provisions of the Plan, the Committee shall have authority
in its sole discretion:
(a) To interpret the provisions of the Plan and decide all questions
of fact arising in its application;
(b) To prescribe, amend and rescind rules and regulations relating to
the Plan;
(c) To determine the Qualified Employees to whom, the time or times at
which, the price at which, and the extent to which Restricted Shares,
Options and any SARs shall be granted based upon the nature of the services
rendered or to be rendered by the persons it deems eligible, their past,
present and potential contributions to the success of the Company and/or
any of its Subsidiaries their other compensation from the Company or any
Subsidiary, and such other factors as the Committee in its discretion shall
deem relevant;
(d) To determine, upon their issuance but not thereafter, the time
when Restricted Shares are vested;
(e) To determine, upon their issuance but not thereafter, the time or
times when Options and any SARs become exercisable and the duration of the
exercise period;
(f) To determine whether any shares of common stock under any Option
must be purchased before any related SAR becomes exercisable;
(g) To prescribe and amend the form or forms of the Restricted Stock
Agreement and Option Agreement;
(h) To determine the form or forms of consideration which will be
accepted by the Company from an Optionee in payment of the purchase price
upon the exercise of an Option; and
(i) To determine which Options shall be Incentive Stock Options and
which Options shall be Non-Qualified Stock Options.
The Committee's determinations of the foregoing shall be final and
conclusive.
4. ELIGIBILITY Restricted Shares, Options and any SARs may be granted
under the Plan only to Qualified Employees. Any Qualified Employee may be
granted and may hold more than one award of Restricted Shares, more than one
Option and more than one SAR. In no event shall an Incentive Stock Option be
granted to a Qualified Employee if the grant of such Incentive Stock Option
would cause the aggregate Fair Market Value (on the Date of Grant) of the common
stock with respect to which Incentive Stock Options are exercisable for the
first time by such Qualified Employee during any calendar year (under all plans
of the Company and any parent or subsidiary corporations of the Company within
the meaning of Code Section 425) to exceed $100,000.
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5. SHARES AVAILABLE Subject to adjustment as provided in Section 10
hereof:
(a) An aggregate of 1,800,000 shares of common stock will be available
and reserved for issue or transfer with respect to Restricted Shares,
Options or SARs granted under the Plan.
(b) When the right to purchase shares pursuant to an Option is
surrendered on exercise of a SAR, whether such right is settled in cash,
common stock or a combination thereof, the aggregate number of shares
covered by the related Option shall be reduced by the number of shares with
respect to which the SAR was exercised, and such shares shall not be
available for granting further Options and SARS.
(c) No Qualified Employee including the Chief Executive Officer of the
Company may receive more than 450,000 Restricted Shares, Options or SARs
granted under the Plan.
(d) If an Option shall terminate for any reason without having been
exercised in full or surrendered on exercise of a SAR, the unpurchased and
non-surrendered shares subject thereto shall become available for further
Restricted Shares, Options and SARs.
(e) In applying the limitation on the number of Restricted Shares,
Options or SARs that can be received by a Qualified Employee as set forth
in paragraphs (c) and (d) of this Section 5, the principles of Section
162(m) of the Internal Revenue Code of 1986, as amended, and the
regulations issued thereunder, shall govern.
(f) In the case of Options or SARs, the maximum amount of compensation
payable to a Qualified Employee attributable to the exercise of Options or
SARs under the Plan shall be equal to the maximum number of shares of
common stock for which Options or SARs can be granted to a Qualified
Employee under Section 5 hereof multiplied by the excess of the Fair Market
Value of the common stock on the date of the exercise over the aggregate
Option price of such shares as determined under Section 7 hereof.
6. RESTRICTED SHARES Restricted Shares shall be granted subject to the
following conditions:
(a) The number of Restricted Shares granted to a Qualified Employee in
any one calendar year shall be determined by the Committee and shall be
based on a percentage of such qualified employees' salary as a group, such
percentage not to exceed twenty five (25%) percent of the gross annual
aggregate salaries of such employees, divided by the Fair Market Value of
the Company's stock on the day prior to the Date of Grant.
(b) Restricted Shares shall vest ratably over a five (5) year period
from the Date of Grant or pursuant to such other vesting schedule as the
Committee shall approve at the time of grant. The Restricted Stockholder
may make provision for the payment of all or any part of any taxes which
the Company is obligated to collect or withhold with respect to the vesting
of Restricted Shares by (i) the delivery to the Company of full shares of
common stock, valued at Fair Market Value, that have been held for at least
six (6) months or (ii) by electing to have the Company withhold whole
shares of common stock, valued at Fair Market Value, from the vested
Restricted Shares to be delivered to the Restricted Stockholder.
(c) Upon the occurrence of a Change in Control, subject to any
limitation set forth in the Restricted Stock Agreement, all restrictions
shall lapse and all Restricted Shares shall be deemed to have vested.
(d) Forfeiture of Restricted Shares:
(i) Restricted Shares which have not vested in the hands of the
Restricted Stockholder shall be forfeited to the Company upon voluntary
or involuntary termination of the Restricted Stockholder's employment
with the Company for any reason;
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(ii) Notwithstanding the foregoing, upon death or disability, a
Restricted Stockholder shall be considered to be vested for those
Restricted Shares which would have otherwise vested in the year such
death or disability occurred.
(e) Each certificate representing shares issued to a Restricted
Stockholder which have not vested shall be retained by the Company and
shall bear a legend that complies with applicable law with respect to the
restrictions on transferability:
"The shares represented by this certificate are subject to
restrictions on transferability imposed by that certain instrument entitled
the 1993 Stock Option Plan adopted December 15, 1993 as from time to time
amended which limits transferability and subjects these shares to
forfeiture to Trenwick Group Inc. in certain instances."
Nothing in the Plan or in any Restricted Stock Agreement shall in any way
diminish the right of the Company or any Subsidiary to reduce the compensation
or to terminate the employment of any Restricted Stockholder or Qualified
Employee.
7. OPTIONS Each Option granted shall be subject to the following
conditions:
(a) The Option price per share of common stock shall be set by the
Option Agreement but shall in no instance be less than one hundred (100%)
percent of the Fair Market Value on the Date of Grant with respect to any
Option.
(b) Each Option will become exercisable in part or in full on the date
or dates specified in the Option Agreement.
(c) Upon the occurrence of a Change in Control of the Company, subject
to any limitation set forth in the Option Agreement, all outstanding
Options shall become immediately exercisable in full.
(d) Each Option and any related SARs shall terminate:
(1) If the Optionee is then living, at the earliest of the
following times:
(i) ten years after the Date of Grant of the Option;
(ii) five years after termination of employment because of
retirement;
(iii) one month after termination of employment other than
termination because of retirement or through discharge for cause
provided, however, that if any Option is not fully exercisable at the
time of such termination of employment, such Option shall expire on
the date of such termination of employment to the extent not then
exercisable;
(iv) immediately upon termination of employment through
discharge for cause; or
(v) any earlier time set forth in the Option Agreement.
(2) If the Optionee dies while employed by the Company or any
Subsidiary, or if no longer so employed, prior to termination of the
entire Option under Section 7(d)(1)(ii) or (iii) hereof, one hundred and
eighty (180) days after the date of death. To the extent an Option is
exercisable after the death of the Optionee, it may be exercised by the
person or persons to whom the Optionee's rights under the Option
Agreement have passed by will or by the applicable laws of descent and
distribution.
(e) If the Optionee exercises any Option or SAR with respect to some,
but not all, of the shares of common stock subject to such Option or SAR,
the right to exercise such Option or SAR with respect to the remaining
shares shall continue until it lapses or terminates. No Option shall be
exercisable except in respect of whole shares. The exercise of an Option or
SAR may be made with respect to no fewer than ten shares at one time unless
fewer than ten shares remain subject to the Option or SAR.
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(f) Any exercise of an Option shall be effective on the Date of
Exercise, provided the full purchase price of such shares or an effective
Exercise Notice has been tendered with the notice of exercise. Payment of
the purchase price upon the exercise of any Option shall be made in cash
(including check, bank draft or money order), by the delivery of full
shares of common stock valued at Fair Market Value (but only if such shares
have been held by the Optionee for at least six (6) months), by promissory
note (containing such terms and conditions as the Committee may in its
discretion determine) or by any combination thereof. The Optionee may make
provision for the payment of all or any part of any taxes which the Company
is obligated to collect or withhold with respect to the issue or transfer
of any common stock underlying an Option by (i) the delivery to the Company
of full shares of common stock, valued at Fair Market Value, that have been
held for at least six (6) months or (ii) electing to have the Company
withhold whole shares of common stock, valued at Fair Market Value, from
the shares to be delivered to the Optionee upon the exercise.
Nothing in the Plan or in any Option Agreement shall in any way diminish
the right of the Company or any Subsidiary to reduce the compensation or to
terminate the employment of any Optionee or Qualified Employee.
8. STOCK APPRECIATION RIGHTS The Committee may in its discretion grant
SARs either concurrently with or subsequent to the Date of Grant of the related
Option. An SAR shall be evidenced by provisions in the Option Agreement or an
amendment or supplement thereto. SARs shall be subject to the following terms
and conditions:
(a) Grant. The number of shares of common stock covered by an SAR
shall not exceed the number of shares of common stock covered by the
related Option.
(b) Exercise. An SAR shall be exercisable, in whole or in part, at
such time or times, on the conditions and to the extent set forth in the
Option Agreement but in no event will such SAR be exercisable;
(i) At any time that the related Option is not exercisable; or
(ii) At any time that the Fair Market Value of a share of common
stock does not exceed the Option price of the related Option share.
(c) An SAR will terminate on the same date as the related Option.
An Optionee shall be entitled upon exercise of an SAR to receive payment in
the amount described in the definition of "Stock Appreciation Right". In
connection with the exercise of an SAR, the Optionee thereof may, subject to the
provisions of the following paragraph, request by application to the Committee
to receive payment in the form of cash, shares of common stock, or a combination
thereof. However, the Committee, in its sole discretion, shall determine the
form of payment.
9. LIMITATIONS ON COMMON STOCK Any shares of common stock issued or
transferred pursuant to the Plan shall not be sold, transferred or otherwise
disposed of by Restricted Stockholders or Optionees except in compliance with
applicable registration requirements of state and federal securities laws unless
in the opinion of counsel for the Company, such sale, transfer or disposition is
exempt from registration.
10. ADJUSTMENT OF SHARES If any change is made in the common stock
subject to the Plan, or subject to Restricted Shares, any Option or SAR, through
merger, consolidation, reorganization, recapitalization, stock dividend, stock
split, combination of shares, rights offerings, change in corporate structure of
the Company, or otherwise, the Board in its discretion may make appropriate
adjustments as to the number and type of securities subject to and reserved for
issue or transfer under the Plan and, in order to prevent dilution or
enlargement of the rights of Restricted Stockholders, Optionees, the number of
Restricted Shares or number of Options, type and Option price of securities
subject to outstanding Options and SARs.
11. NON-TRANSFERABILITY Each share of Restricted Shares shall be
nontransferable and subject to forfeiture to the Company until vested.
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No Option or SAR is transferable by the Optionee other than by will or the
laws of descent and distribution, and no Option or SAR is exercisable during the
Optionee's lifetime by anyone other than the Optionee.
12. STOCKHOLDER'S RIGHTS The Restricted Stockholder shall have all rights
relative to the Restricted Shares, including the right to vote and to collect
dividends.
Neither the Optionee nor the Optionee's legal representative, legatees or
distributees, as the case may be, shall have any of the rights or privileges of
a stockholder of the Company by virtue of the grant of an Option or SAR except
with respect to any shares of common stock actually issued or transferred of
record and delivered to one of the aforementioned persons.
13. TERMINATION, SUSPENSION OR MODIFICATION OF PLAN The Board may at any
time terminate, suspend or modify the Plan. No termination, suspension or
modification of the Plan shall adversely affect any right acquired by any
Restricted Stockholder or Optionee under the terms of Restricted Shares, Options
or SARs granted before the date of such termination, suspension or modification,
unless such Restricted Stockholder or Optionee shall consent thereto.
14. GOVERNING LAWS The Plan and all rights and obligations thereunder
shall be construed in accordance with and governed by the laws of the State of
Delaware.
15. TERM Unless previously terminated by the Board, the Plan shall
terminate at the close of business on December 14, 2003. No Restricted Shares,
Options or SARs shall be granted after Plan termination, but such termination
shall not affect any Restricted Shares, Options or SARs previously granted.
16. APPROVAL The Plan shall become effective on December 15, 1993 but
shall be subject to approval by vote of the stockholders of the Company at the
1994 Annual Meeting.
E-7
<PAGE> 209
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The General Corporation Law of the State of Delaware authorizes
corporations to limit or eliminate the personal liability of directors to
corporations and their stockholders for monetary damages for breach of
directors' fiduciary duty of care. Article IV of the Registrant's By-laws
requires indemnification of the Registrant's directors and officers to the
fullest extent permitted by the Delaware Corporation Law and provides for the
advancement of defense expenses provided the director or officer agrees to repay
the advance if it is ultimately determined that he is not entitled to
indemnification. Article IV also provides that the indemnification provided by
the By-laws is not exclusive. Section 145(a) of the Delaware Corporation Law
provides in general that a corporation may indemnify anyone who is or may be a
party to a legal proceeding by reason of his service as a director or officer
against expenses, judgments, fines and settlement payments actually and
reasonably incurred if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and,
as to any criminal proceeding, had no reasonable cause to believe his conduct
was unlawful. Section 145(b) of the Delaware Corporation Law provides similarly
where the proceeding is by or in the right of the corporation to procure a
judgment in its favor. Section 145(g) of the Delaware Corporation Law allows a
corporation to maintain insurance on behalf of any officer or director against
any liability incurred by him in such capacity, whether or not the corporation
would have the power to indemnify him against such liability under law. The
Registrant maintains directors and officers liability insurance in an amount
aggregating $20 million.
Each of the Registrant's directors has entered into a supplementary
indemnity agreement with the Registrant which (i) confirms the indemnity set
forth in the By-Laws and gives assurances that such indemnity will continue to
be provided despite any By-Law changes and (ii) provides, subject to certain
conditions, that the director shall be indemnified to the fullest extent
permitted by law against all expenses, fines and settlement amounts incurred or
paid by him in any proceeding.
As permitted by Section 102(b)(7) of the Delaware Law, Article 12 of the
Registrant's Certificate of Incorporation eliminates personal liability of any
director to the Registrant and its stockholders for breach of the director's
fiduciary duty of care, except where the director has breached his duty of
loyalty, acted in bad faith, engaged in intentional or knowing misconduct,
negligently or willfully declared an improper dividend or effected an unlawful
stock purchase or redemption, or obtained an improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-1
<PAGE> 210
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<S> <C>
2 Agreement and Plan of Merger, dated June 21, 1999, between
Trenwick Group Inc. and Chartwell Re Corporation (included
as Appendix A to the Joint Proxy Statement/Prospectus
contained in this Registration Statement).
3(i) Restated Certificate of Incorporation of Trenwick Group Inc.
with Certificates of Amendment thereto (incorporated herein
by reference to Exhibit 3.1 to Trenwick Group Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997 (File No. 0-14737)).
3(ii)(a) Certificate of Elimination amending Trenwick Group Inc.'s
Restated Certificate of Incorporation to eliminate all
reference to Series A Junior Participating Preferred Stock
(incorporated herein by reference to Exhibit 3.1(a) to
Trenwick Group Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 (File No. 0-14737)).
3(ii)(b) Certificate of Designation amending the Restated Certificate
of Incorporation of Trenwick Group Inc. to create Series B
Junior Participating Preferred Stock (incorporated herein by
reference to Exhibit 3.2(b) to Trenwick Group Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 (File No. 0-14737)).
3(iii) Trenwick Group Inc.'s By-laws (incorporated herein by
reference to Exhibit 3 to Trenwick Group Inc.'s Form 10-Q
for the quarter ended June 30, 1999 (File No. 0-14737)).
4.1 See Exhibits 3(i), 3(ii)(a), 3(ii)(b) and 3(iii) for
provisions of the Restated Certificate of Incorporation,
Certificate of Elimination, Certificate of Designation and
By-laws of Trenwick Group Inc. defining the rights of
holders of common stock of Trenwick Group Inc.
4.2 Rights Agreement, dated as of September 24, 1997 between
Trenwick Group Inc. and First Chicago Trust Company of New
York including, as Exhibit A thereto, a form of Rights
Certificate (incorporated herein by reference to Exhibit 1
to Trenwick Group Inc.'s Form 8-A filed September 24, 1997
(File No. 0-14737)).
4.3(a) Indenture, dated as of January 31, 1997, between The Chase
Manhattan Bank and Trenwick Group Inc. (incorporated herein
by reference to Exhibit 4.2(a) to Trenwick Group Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1996 (File No. 0-14737)).
4.3(b) Amended and Restated Declaration of Trust of Trenwick
Capital Trust I, dated as of January 31, 1997 (incorporated
herein by reference to Exhibit 4.2(b) to Trenwick Group
Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1996 (File No. 0-14737)).
4.3(c) Exchange Capital Securities Guarantee Agreement, dated as of
July 25, 1997, between Trenwick Group Inc. and The Chase
Manhattan Bank, as Trustee (incorporated herein by reference
to Exhibit 4.7 to Trenwick Group Inc.'s Registration
Statement on Form S-4 (File No. 333-28707)).
4.4 Indenture, dated as of March 27, 1998 between Trenwick Group
Inc. and The First National Bank of Chicago, as Trustee,
with respect to Trenwick Group Inc.'s $75 million principal
amount of 6.7% Senior Notes due April 1, 2003 (incorporated
herein by reference to Exhibit 4.2 to Trenwick Group Inc.'s
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999 (File No. 0-14737)).
5 Opinion of Jane T. Wiznitzer, Esq., Vice President - Legal
Affairs of Trenwick Group Inc., dated September 3, 1999
regarding the validity of securities being offered hereby.
8.1 Opinion of Baker & McKenzie dated September 7, 1999
regarding certain federal income tax matters.
8.2 Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P. dated
September 7, 1999 regarding certain federal income tax
matters.
10 Trenwick Group Inc. 1993 Stock Option Plan (included as
Annex E to the Joint Proxy Statement/Prospectus contained in
this Registration Statement).
11 Statement re: computation of per share earnings
(incorporated herein by reference to Note 5 to Trenwick
Group Inc.'s Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 (File No. 0-14737)).
12 Statement re: computation of ratios (incorporated herein by
reference to Exhibit 12 to Trenwick Group Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1998
(File No. 0-14737)).
</TABLE>
II-2
<PAGE> 211
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<S> <C>
21 List of Subsidiaries of Trenwick Group Inc. (incorporated
herein by reference to Exhibit 21 of Trenwick Group Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1998 (File No. 0-14737)).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Baker & McKenzie (included in Exhibit 8.1).
23.4 Consent of LeBoeuf, Lamb, Greene & MacRae L.L.P. (included
in Exhibit 8.2).
23.5 Consent of Jane T. Wiznitzer, Esq., Vice President of Legal
Affairs of Trenwick Group Inc. (included in Exhibit 5).
23.6 Consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
24 Powers of Attorney (included on Page II-4 of this
Registration Statement).
99.1 Form of Trenwick Group Inc. Proxy (included as the
penultimate document of this Registration Statement).
99.2 Form of Chartwell Re Corporation Proxy (included as the last
document of this Registration Statement).
99.3 Stock Option Agreement, dated June 21, 1999, between
Trenwick Group Inc. and Chartwell Re Corporation (included
as Appendix B to the Joint Proxy Statement/Prospectus
contained in this Registration Statement).
99.4 Opinion of Donaldson, Lufkin & Jenrette (included as
Appendix C to the Joint Proxy Statement/Prospectus contained
in this Registration Statement).
99.5 Opinion of Goldman, Sachs & Co. (included as Appendix D to
the Joint Proxy Statement/ Prospectus contained in this
Registration Statement).
99.6 Consent of Goldman, Sachs & Co.
</TABLE>
(b) Financial Statement Schedules
All financial statement schedules of the Registrant and Chartwell which are
required to be included herein are included in the Annual Report of the
Registrant on Form 10-K for the year ended December 31, 1998 (File No. 0-14737)
or the Annual Report of Chartwell on Form 10-K for the year ended December 31,
1998 (File No. 1-12502), respectively, which are incorporated herein by
reference.
(c) The opinions of Donaldson, Lufkin & Jenrette Securities Corporation and
Goldman, Sachs & Co. are included as Appendices C and D, respectively, to the
Joint Proxy Statement/Prospectus contained in this Registration Statement.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth in
the effective Registration Statement; and
II-3
<PAGE> 212
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this Registration Statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(d) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the Registration Statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-4
<PAGE> 213
(f) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date
of the Registration Statement through the date of responding to the
request.
(g) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the Registration Statement when it became effective.
II-5
<PAGE> 214
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Stamford, State of
Connecticut, on the 3rd day of September, 1999.
TRENWICK GROUP INC.
By: /s/ JAMES F. BILLETT, JR.
------------------------------------
James F. Billett, Jr., Chairman of
the Board, President and Chief
Executive Officer
------------------------
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Power of Attorney has been signed by the following persons in the
capacities and on the dates indicated. By so signing, each of the undersigned,
in his capacity as a director of Trenwick Group Inc. (the "Registrant"), does
hereby appoint James F. Billett, Jr. and Alan L. Hunte, and each of them
severally, his true and lawful attorneys or attorney to execute in his name,
place and stead, in his capacity as a director of the Registrant, this
Registration Statement on Form S-4 to be filed with the Securities and Exchange
Commission (the "SEC"), and any and all amendments to said Registration
Statement and all instruments necessary or incidental in connection therewith,
and to file the same with the SEC. Each of said attorneys shall have full power
and authority to do and perform in the name and on behalf of each of the
undersigned, in his capacity as a director of the Registrant, every act
whatsoever requisite or necessary to be done in the premises as fully and to all
intents and purposes as each of the undersigned might or could do in person,
hereby ratifying and approving the acts of said attorneys and each of them.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JAMES F. BILLETT, JR. Chairman of the Board, President September 3, 1999
- ------------------------------------------------ and Chief Executive Officer
James F. Billett, Jr. and Director (Principal
Executive Officer)
/s/ ALAN L. HUNTE Vice President, and Treasurer September 3, 1999
- ------------------------------------------------ (Principal Financial Officer
Alan L. Hunte and Accounting Officer)
/s/ W. MARSTON BECKER Director September 3, 1999
- ------------------------------------------------
W. Marston Becker
/s/ ANTHONY S. BROWN Director September 3, 1999
- ------------------------------------------------
Anthony S. Brown
/s/ NEIL DUNN Director September 3, 1999
- ------------------------------------------------
Neil Dunn
</TABLE>
II-6
<PAGE> 215
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ P. ANTHONY JACOBS Director September 3, 1999
- ------------------------------------------------
P. Anthony Jacobs
/s/ JOSEPH D. SARGENT Director September 3, 1999
- ------------------------------------------------
Joseph D. Sargent
/s/ FREDERICK D. WATKINS Director September 3, 1999
- ------------------------------------------------
Frederick D. Watkins
/s/ STEPHEN R. WILCOX Director September 3, 1999
- ------------------------------------------------
Stephen R. Wilcox
</TABLE>
II-7
<PAGE> 216
TRENWICK GROUP INC.
PROXY SOLICITED ON BEHALF OF THE MANAGEMENT OF
TRENWICK GROUP INC. FOR THE SPECIAL MEETING OF STOCKHOLDERS ON
OCTOBER 7, 1999
The undersigned hereby constitutes and appoints James F. Billett, Jr. and
W. Marston Becker, and each of them, his/her true and lawful agents and proxies
with full power of substitution in each to represent the undersigned at the
Special Meeting of Stockholders of Trenwick Group Inc. to be held on October 7,
1999 at the Hyatt Regency Greenwich, 1800 East Putnam Avenue, Old Greenwich,
Connecticut 06870 at 9:00 a.m., local time, and at any postponement or
adjournment thereof on all matters coming before the meeting.
COMMENTS: (Change of Address)
--------------------------------
--------------------------------
--------------------------------
(If you have written in the
above space, please mark the
corresponding box on the reverse
side of this card.)
You are encouraged to specify your choices by marking the appropriate boxes (SEE
REVERSE SIDE), but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors' recommendations. The proxy holders cannot vote your
shares unless you sign and return this card.
<PAGE> 217
[X] PLEASE MARK YOUR VOTE AS IN THIS EXAMPLE.
This Proxy when properly executed will be voted in the manner directed
herein. If no direction is made, this Proxy will be voted FOR Proposals 1 and 2.
1. To adopt the merger agreement between Trenwick Group Inc. and Chartwell Re
Corporation and approve the merger and the related issuance of Trenwick
common stock to Chartwell stockholders in completion of the merger.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To approve an amendment to Trenwick's 1993 Stock Option Plan to increase the
number of shares of common stock authorized for issuance under the plan
effective upon the merger of Trenwick and Chartwell.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
SIGNATURE(S) --------------------------------------------- DATE ----------, 1999
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
The signer hereby revokes all proxies heretofore given by the signer to vote at
said meeting or any adjournments thereof.
Change of Address/Comments on Reverse Side [ ]
<PAGE> 218
CHARTWELL RE CORPORATION
PROXY SOLICITED ON BEHALF OF THE MANAGEMENT OF
CHARTWELL RE CORPORATION FOR THE SPECIAL MEETING OF STOCKHOLDERS ON
OCTOBER 7, 1999
The undersigned hereby constitutes and appoints Richard E. Cole and Steven
J. Bensinger, and each of them, his/her true and lawful agents and proxies with
full power of substitution in each to represent the undersigned at the Special
Meeting of Stockholders of Chartwell Re Corporation to be held on October 7,
1999 at Four Stamford Plaza, 107 Elm Street, 15th Floor, Stamford, Connecticut
06902 at 9:00 a.m., local time, and at any postponement or adjournment thereof
on all matters coming before the meeting.
COMMENTS: (Change of Address)
--------------------------------
--------------------------------
--------------------------------
(If you have written in the
above space, please mark the
corresponding box on the reverse
side of this card.)
You are encouraged to specify your choices by marking the appropriate boxes (SEE
REVERSE SIDE), but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors' recommendations. The proxy holders cannot vote your
shares unless you sign and return this card.
<PAGE> 219
[X] PLEASE MARK YOUR VOTE AS IN THIS EXAMPLE.
This Proxy when properly executed will be voted in the manner directed
herein. If no direction is made, this Proxy will be voted FOR the following
Proposal:
To adopt the merger agreement between Trenwick Group Inc. and Chartwell Re
Corporation and approve the merger.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
SIGNATURE(S) --------------------------------------------- DATE ----------, 1999
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
The signer hereby revokes all proxies heretofore given by the signer to vote at
said meeting or any adjournments thereof.
Change of Address/Comments on Reverse Side [ ]
<PAGE> 220
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<S> <C>
2 Agreement and Plan of Merger, dated June 21, 1999, between
Trenwick Group Inc. and Chartwell Re Corporation (included
as Appendix A to the Joint Proxy Statement/Prospectus
contained in this Registration Statement).
3(i) Restated Certificate of Incorporation of Trenwick Group Inc.
with Certificates of Amendment thereto (incorporated herein
by reference to Exhibit 3.1 to Trenwick Group Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997 (File No. 0-14737)).
3(ii)(a) Certificate of Elimination amending Trenwick Group Inc.'s
Restated Certificate of Incorporation to eliminate all
reference to Series A Junior Participating Preferred Stock
(incorporated herein by reference to Exhibit 3.1(a) to
Trenwick Group Inc.'s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 (File No. 0-14737)).
3(ii)(b) Certificate of Designation amending the Restated Certificate
of Incorporation of Trenwick Group Inc. to create Series B
Junior Participating Preferred Stock (incorporated herein by
reference to Exhibit 3.2(b) to Trenwick Group Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 (File No. 0-14737)).
3(iii) Trenwick Group Inc.'s By-laws (incorporated herein by
reference to Exhibit 3 to Trenwick Group Inc.'s Form 10-Q
for the quarter ended June 30, 1999 (File No. 0-14737)).
4.1 See Exhibits 3(i), 3(ii)(a), 3(ii)(b) and 3(iii) for
provisions of the Restated Certificate of Incorporation,
Certificate of Elimination, Certificate of Designation and
By-laws of Trenwick Group Inc. defining the rights of
holders of common stock of Trenwick Group Inc.
4.2 Rights Agreement, dated as of September 24, 1997 between
Trenwick Group Inc. and First Chicago Trust Company of New
York including, as Exhibit A thereto, a form of Rights
Certificate (incorporated herein by reference to Exhibit 1
to Trenwick Group Inc.'s Form 8-A filed September 24, 1997
(File No. 0-14737)).
4.3(a) Indenture, dated as of January 31, 1997, between The Chase
Manhattan Bank and Trenwick Group Inc. (incorporated herein
by reference to Exhibit 4.2(a) to Trenwick Group Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1996 (File No. 0-14737)).
4.3(b) Amended and Restated Declaration of Trust of Trenwick
Capital Trust I, dated as of January 31, 1997 (incorporated
herein by reference to Exhibit 4.2(b) to Trenwick Group
Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1996 (File No. 0-14737)).
4.3(c) Exchange Capital Securities Guarantee Agreement, dated as of
July 25, 1997, between Trenwick Group Inc. and The Chase
Manhattan Bank, as Trustee (incorporated herein by reference
to Exhibit 4.7 to Trenwick Group Inc.'s Registration
Statement on Form S-4 (File No. 333-28707)).
4.4 Indenture, dated as of March 27, 1998 between Trenwick Group
Inc. and The First National Bank of Chicago, as Trustee,
with respect to Trenwick Group Inc.'s $75 million principal
amount of 6.7% Senior Notes due April 1, 2003 (incorporated
herein by reference to Exhibit 4.2 to Trenwick Group Inc.'s
Quarterly Report on Form 10-Q for the quarter ended March
31, 1999 (File No. 0-14737)).
5 Opinion of Jane T. Wiznitzer, Esq., Vice President-Legal
Affairs of Trenwick Group Inc., dated September 3, 1999
regarding the validity of securities being offered hereby.
8.1 Opinion of Baker & McKenzie dated September 7, 1999
regarding certain federal income tax matters.
8.2 Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P. dated
September 7, 1999 regarding certain federal income tax
matters.
10 Trenwick Group Inc. 1993 Stock Option Plan (included as
Annex E to the Joint Proxy Statement/Prospectus contained in
this Registration Statement).
11 Statement re: computation of per share earnings
(incorporated herein by reference to Note 5 to Trenwick
Group Inc.'s Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 (File No. 0-14737)).
12 Statement re: computation of ratios (incorporated herein by
reference to Exhibit 12 to Trenwick Group Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1998
(File No. 0-14737)).
</TABLE>
<PAGE> 221
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<S> <C>
21 List of Subsidiaries of Trenwick Group Inc. (incorporated
herein by reference to Exhibit 21 of Trenwick Group Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1998 (File No. 0-14737)).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Baker & McKenzie (included in Exhibit 8.1).
23.4 Consent of LeBoeuf, Lamb, Greene & MacRae L.L.P. (included
in Exhibit 8.2).
23.5 Consent of Jane T. Wiznitzer, Esq., Vice President of Legal
Affairs of Trenwick Group Inc. (included in Exhibit 5).
23.6 Consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
24 Powers of Attorney (included on Page II-4 of this
Registration Statement).
99.1 Form of Trenwick Group Inc. Proxy (included as the
penultimate document of this Registration Statement).
99.2 Form of Chartwell Re Corporation Proxy (included as the last
document of this Registration Statement).
99.3 Stock Option Agreement, dated June 21, 1999, between
Trenwick Group Inc. and Chartwell Re Corporation (included
as Appendix B to the Joint Proxy Statement/Prospectus
contained in this Registration Statement).
99.4 Opinion of Donaldson, Lufkin & Jenrette (included as
Appendix C to the Joint Proxy Statement/Prospectus contained
in this Registration Statement).
99.5 Opinion of Goldman, Sachs & Co. (included as Appendix D to
the Joint Proxy Statement/ Prospectus contained in this
Registration Statement).
99.6 Consent of Goldman, Sachs & Co.
</TABLE>
<PAGE> 1
EXHIBIT 5
September 3, 1999
Trenwick Group Inc.
One Canterbury Green
Stamford, Connecticut 06901
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933, as
amended (the "Securities Act"), by Trenwick Group Inc., a Delaware corporation
(the "Company"), of 7,971,887 shares of common stock, par value $.10 per share,
of the Company (the "Securities"), issuable in connection with the Merger (the
"Merger") contemplated by the Agreement and Plan of Merger, dated as of June 21,
1999 (the "Merger Agreement") between the Company and Chartwell Re Corporation,
a Delaware corporation ("Chartwell"), I, as Vice President -- Legal Affairs of
the Company, have examined the Merger Agreement and such corporate records,
certificates and other documents, and such questions of law, as I have
considered necessary or appropriate for the purposes of this opinion. Upon the
basis of such examination, I advise you that, in my opinion, assuming that the
Merger Agreement has been duly authorized, executed and delivered by Chartwell,
when the registration statement relating to the Securities (the "Registration
Statement") has become effective under the Securities Act, the Merger Agreement
and the principal terms of the Merger have been duly approved by the holders of
the outstanding shares of the Securities and the common stock, par value $.01
per share, of Chartwell, each other condition to the Company's and Chartwell's
respective obligations to consummate the Merger has been satisfied or waived,
the Merger has become effective pursuant to Section 251 of the Delaware General
Corporation Law, and the Securities have been duly issued as contemplated by the
Registration Statement and the Merger Agreement, the Securities will be validly
issued, fully paid and nonassessable.
The foregoing opinion is limited to the Federal laws of the United States
and the General Corporation Law of the State of Delaware, and I am expressing no
opinion as to the effect of the laws of any other jurisdiction.
I have relied as to certain matters on information obtained from public
officials, officers of the Company and other sources believed by me to be
responsible.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me under the heading "Legal
Matters" in the Joint Proxy Statement/Prospectus which forms a part of the
Registration Statement. In giving such consent, I do not thereby admit that I am
in the category of persons whose consent is required under Section 7 of the Act.
Very truly yours,
/s/ JANE T. WIZNITZER
--------------------------------------
Jane T. Wiznitzer
Vice President -- Legal Affairs
<PAGE> 1
EXHIBIT 8.1
BAKER & MCKENZIE
805 THIRD AVENUE
NEW YORK, N.Y. 10022
September 7, 1999
Trenwick Group, Inc.
One Canterbury Green
Stamford, Connecticut 06901
Ladies and Gentlemen:
We have acted as counsel to Trenwick Group Inc., a Delaware corporation
(the "Company"), in connection with the merger of Chartwell Re Corporation, a
Delaware corporation ("Chartwell"), with and into the Company, pursuant to the
Agreement and Plan of Merger, dated as of June 21, 1999, by and between
Chartwell and the Company (the "Agreement"). We render this opinion to you, in
part, in connection with the registration of the Trenwick Common Stock to be
issued in connection with the Merger. All capitalized terms used and not
otherwise defined herein shall have the meanings provided in the Agreement.
For purposes of this opinion, we have reviewed the Agreement and such other
documents and matters of law and fact as we have considered necessary or
appropriate and have relied, with the consent of the Company and the consent of
Chartwell, upon the accuracy and completeness of the statements and
representations contained, respectfully, in the representation letters of the
Company and Chartwell to us and LeBoeuf, Lamb, Greene & MacRae, L.L.P., counsel
to Chartwell, and have assumed the same will be true, complete and accurate as
of the Effective Time. We have assumed the genuineness of all signatures, the
legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the original of such copies. We have also relied upon the
accuracy of the Joint Proxy Statement/Prospectus of the Company and Chartwell
(the "Joint Proxy Statement/Prospectus"). We have further assumed that (i) the
transactions contemplated by the Agreement will be consummated in accordance
therewith and as described in the Joint Proxy Statement/Prospectus, and (ii) the
Merger will qualify as a statutory merger under the laws of the State of
Delaware.
Based upon and subject to the foregoing it is our opinion, under currently
applicable United States federal income tax law, that:
(1) The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code");
(2) Each of the Company and Chartwell will be a party to that
reorganization within the meaning of Section 368(b) of the Code; and
(3) No gain or loss will be recognized by the stockholders of
Chartwell who exchange all of their Chartwell Common Stock solely for
shares of Trenwick Common Stock pursuant to the Merger (except with respect
to cash received in lieu of a fractional share interest in Trenwick Common
Stock).
We express no opinion as to the United States federal income tax
consequences of the merger to stockholders subject to special treatment under
United States federal income tax law, such as foreign persons, dealers in
securities, traders in securities that elect to use a mark-to-market method of
accounting, tax-exempt organizations, stockholders who acquired shares of
Chartwell Common Stock through the exercise of options, grants of performance
shares under Chartwell's equity based compensation plans or otherwise as
compensation, or through a tax-qualified retirement plan, or holders that hold
Chartwell Common Stock as part of a straddle or conversion transaction. In
addition, no opinion is expressed with
<PAGE> 2
respect to the tax consequences of the Merger under applicable foreign, state or
local laws or under any federal tax laws other than those pertaining to income
tax.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the heading "Important
Federal Income Tax Consequences of the Merger" in the Joint Proxy
Statement/Prospectus. In giving such consent we do not thereby admit that we are
in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
/s/ BAKER & MCKENZIE
--------------------------------------
Baker & McKenzie
<PAGE> 1
EXHIBIT 8.2
LEBOEUF, LAMB, GREENE & MACRAE, L.L.P.
125 WEST 55TH STREET
NEW YORK, NEW YORK 10019-5389
September 7, 1999
Chartwell Re Corporation
Four Stamford Plaza
107 Elm Street
Stamford, Connecticut 06902
Re: Agreement and Plan of Merger between Trenwick Group Inc. and Chartwell
Re Corporation, dated as of June 21, 1999
Ladies and Gentlemen:
We have acted as counsel to Chartwell Re Corporation, a Delaware
corporation ("Chartwell") in connection with the merger of Chartwell with and
into Trenwick Group Inc., a Delaware corporation ("Trenwick"), pursuant to the
Agreement and Plan of Merger between Trenwick and Chartwell, dated as of June
21, 1999 (the "Merger Agreement"). You have requested our opinion relating to
certain federal income tax consequences arising out of the Merger. Our
conclusions are based upon (i) the facts and assumptions set forth below; (ii)
the representations made in Chartwell's Officer's Certificate dated as of
September 7, 1999 (the "Chartwell Certificate"); and (iii) the representations
made in Trenwick's Officer's Certificate dated as of September 7, 1999 (the
"Trenwick Certificate"). Capitalized terms used but not defined in this letter
have the meaning given them in the Joint Proxy Statement/Prospectus dated
September 7, 1999 and any exhibits attached thereto.
Our opinion does not address (i) certain federal income tax consequences
applicable to special classes of taxpayers including, without limitation,
dealers in securities, banks, insurance companies, persons who are not treated
as United States persons pursuant to the Internal Revenue Code of 1986, as
amended (the "Code") (including the effects of the Foreign Investment in Real
Property Tax Act on such persons who are not treated as United States persons
pursuant to the Code), estates, trusts, partnerships, corporations, tax-exempt
entities, persons who do not hold their Chartwell Common Stock as capital assets
and persons who acquired Chartwell Common Stock pursuant to the exercise of an
employee option or otherwise as compensation or (ii) the tax consequences of the
Merger, as defined below, under state, local or foreign law.
Pursuant to the Merger Agreement Chartwell will merge with and into
Trenwick and Trenwick will be the surviving corporation (the "Merger"). Each
holder of Chartwell common stock will receive 0.825 of a share of Trenwick
common stock in exchange for each share of Chartwell common stock owned by them.
Trenwick will not issue fractional shares of Trenwick common stock. Instead cash
will be paid with respect to fractional shares.
ASSUMPTIONS
In rendering our opinion, we have assumed with your consent that (i) the
proposed Mergers will be consummated strictly in accordance with the terms and
conditions described in the Merger Agreement and the Joint Proxy
Statement/Prospectus; (ii) the representations made to us by Chartwell in the
Chartwell Certificate and by Trenwick in the Trenwick Certificate will be true
at the Effective Time of the Merger; and (iii) the Merger will qualify as a
statutory merger under the laws of the State of Delaware. We further have
assumed the genuineness of all signatures, the legal capacity of all persons,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as certified, conformed
or photostatic copies and the authenticity of the originals of such copies.
<PAGE> 2
OPINION
Based upon and subject to the foregoing, and provided that the Merger
Agreement, Joint Proxy Statement/Prospectus and the representations, set forth
in the Chartwell Certificate and the Trenwick Certificate, set forth all of the
material facts relating to the Merger fully and accurately as of the date
hereof, and will continue to set forth such facts fully and accurately at all
times to and including the Effective Time of the Merger we are of the opinion
that:
(i) the Merger will constitute a reorganization for United States
federal income tax purposes within the meaning of section 368(a) of the
Code;
(ii) Chartwell and Trenwick will each be a party to the reorganization
within the meaning of Section 368(b) of the Code;
(iii) no gain or loss will be recognized by Chartwell or Trenwick
pursuant to the Merger; and
(iv) no gain or loss will be recognized by the stockholders of
Chartwell who exchange all of their Chartwell Common Stock solely for
shares of Trenwick Common Stock pursuant to the Merger (except with respect
to cash received in lieu of a fractional share interest in Trenwick common
stock).
SCOPE OF OPINION
In rendering our opinion, we have considered the applicable provisions of
the Code, Treasury Regulations promulgated thereunder, pertinent judicial
authorities, interpretive rulings of the Internal Revenue Service and such other
authorities as we have considered relevant. It should be noted that statutes,
regulations, judicial decisions and administrative interpretations are subject
to change at any time and in certain circumstances with retroactive effect. A
material change in the authorities or the facts, information, covenants,
statements, representations or assumptions upon which our opinion is based could
affect our conclusions.
This opinion is not binding on the Internal Revenue Service and there can
be no assurance, and none is therefore given, that the Internal Revenue Service
will not take a position contrary to one or more of the positions reflected in
the foregoing opinion or that our opinion will be upheld by the courts if
challenged by the Internal Revenue Service.
We express no opinion concerning any tax consequences of the Merger, other
than those specifically set forth.
Our opinion may not be relied upon by any person or entity other than you,
and no person may be surrogate to any rights you have in connection with our
opinion. We hereby consent to the filing of this opinion as an exhibit to the
Joint Proxy Statement/Prospectus and the reference to the above mentioned
opinion under "Important Federal Income Tax Consequences of the Merger". In
giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended. Without our prior written consent, this opinion may not be furnished
to any other person or entity and may not be quoted in whole or in part or
otherwise referred to in (or be the basis for) any report or document furnished
to any person or entity, except in connection with inspection of the addressee's
files by internal company or governmental examiners or auditors.
Very truly yours,
/s/ LEBOEUF, LAMB, GREENE & MACRAE,
L.L.P.
----------------------------------------
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Trenwick Group Inc. of our report dated February 3,
1999, relating to the financial statements, which appears in the 1998 Annual
Report to Stockholders of Trenwick Group Inc., which is incorporated by
reference in Trenwick Group Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1998. We also consent to the incorporation by reference of our
report dated February 3, 1999 relating to the financial statement schedules,
which appears in such Annual Report on Form 10-K. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
New York, New York
September 7, 1999
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Trenwick Group Inc. on Form S-4 of our report related to the consolidated
financial statements of Chartwell Re Corporation dated February 2, 1999,
appearing in the Annual Report on Form 10-K of Chartwell Re Corporation for the
year ended December 31, 1998 and incorporated by reference in this Registration
Statement and to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Parsippany, New Jersey
September 7, 1999
<PAGE> 1
EXHIBIT 23.6
CONSENT OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
We hereby consent to (i) the inclusion of our opinion letter, dated June
21, 1999, to the Board of Directors of Trenwick Group Inc. (the "Company") as
Appendix C to the Proxy Statement/Prospectus of the Company relating to describe
the transaction and (ii) all references to DLJ in the Proxy Statement/
Prospectus. In giving such consent, we do not admit that we come within the
category of persons whose consent is required under, and we do not admit that we
are "experts" for purposes of, the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ DAVID M. PLATTER
------------------------------------
David M. Platter
Managing Director
New York, New York
September 3, 1999
<PAGE> 1
EXHIBIT 99.6
CONSENT OF GOLDMAN, SACHS & CO.
PERSONAL AND CONFIDENTIAL
September 3, 1999
Board of Directors
Chartwell Re Corporation
Four Stamford Plaza
107 Elm Street
Stamford, CT 06902
Re: Registration Statement to be filed on September 7, 1999 of Trenwick Group
Inc. relating to the common stock, par value $0.10 per share, being
registered in connection with the merger of Chartwell Re Corporation with
and into Trenwick Group Inc.
Gentlemen:
Reference is made to our opinion letter dated June 21, 1999 with respect to the
fairness from a financial point of view to the holders (excluding Trenwick, as
defined below, or any of its subsidiaries) of the outstanding shares of common
stock, par value $0.01 per share (the "Shares"), of Chartwell Re Corporation
(the "Company") of the exchange ratio of 0.825 shares of common stock, par value
$0.10 per share, of Trenwick to be received for each Share pursuant to the
Agreement and Plan of Merger, dated as of June 21, 1999, between Trenwick Group
Inc. ("Trenwick") and the Company.
The foregoing opinion letter is provided for the information and assistance of
the Board of Directors of the Company in connection with its consideration of
the transaction contemplated therein and is not to be used, circulated, quoted
or otherwise referred to for any other purpose, nor is it to be filed with,
included in or referred to in whole or in part in any registration statement,
proxy statement or any other document, except in accordance with our prior
written consent. We understand that the Company has determined to include our
opinion in the above-referenced Registration Statement.
In that regard, we hereby consent to the reference to the opinion of our Firm
under the captions "The Merger -- Background of the Merger", "The
Merger -- Chartwell Reasons for the Merger; Recommendation of the Chartwell
Board of Directors" and "The Merger -- Opinion of Chartwell's Financial Advisor"
and to the inclusion of the foregoing opinion in the Joint Proxy
Statement/Prospectus included in the above-mentioned Registration Statement. In
giving such consent, we do not hereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933
or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
- ---------------------------------------------------------
(Goldman, Sachs & Co.)
